Restructuring likely to be highest for MSMEs, would lead to 18% jump in stressed assets this FY: Crisil

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October 19, 2021 1:56 PM

Credit and Finance for MSMEs: In order to alleviate Covid stress among MSMEs, the Reserve Bank of India (RBI) in June this year had expanded the scope of restructuring facility for existing MSME loans from Rs 25 crore earlier to Rs 50 crore.

The government in September had extended ECLGS further to March 31, 2022, or till guarantees for the overall ceiling of Rs 4.5 lakh crore are issued, whichever is earlier.

Credit and Finance for MSMEs: Gross non-performing assets (NPAs) of banks are projected to increase to 8-9 per cent this fiscal year, though below the peak of 11.2 per cent witnessed at FY18 end, as Covid relief measures including restructuring dispensation, and the Emergency Credit Line Guarantee Scheme (ECLGS) will help restrict growth, credit rating agency Crisil said on Tuesday. However, the most impacted MSME and retail segments are likely to see a higher accretion of NPAs and stressed assets.

Even as MSMEs benefitted from the ECLGS scheme, which was recently expanded in terms of its limit and period, the sector is expected to see a deteiroration of asset quality and would also need restructuring to tide over cash-flow problems, Crisil said. The restructuring is likely to be the highest for the MSME segment — at 4-5 per cent of the loan book that would lead to growth in stressed assets to 17-18 per cent by this fiscal end from around 14 per cent last fiscal. The gross NPAs were around 10 per cent in the MSME category during the 2020 fiscal year and are expected to be around 12 per cent by March 2021.

“MSMEs have always been affected by issues in the past. They were impacted during Covid due to reasons such as many large enterprises (they serve) were also finding it challenging to grow. However, as the economy recovers further with the relief given by the RBI and the government, things should improve for MSMEs in the medium term to around a year while there could be issues in the short run. Many of them (MSMEs) should be in a position to break even and recover by March,” VG Kannan, former Chief Executive at the Indian Banks’ Association told Financial Express Online.

The government in September had extended ECLGS further to March 31, 2022, or till guarantees for the overall ceiling of Rs 4.5 lakh crore are issued, whichever is earlier. As of September 24, 2021, loans sanctioned had crossed Rs 2.86 lakh crore under the ECLGS scheme, and out of total guarantees issued, about 95 per cent were for loans sanctioned to MSMEs, the Finance Ministry had said in its statement. The last date of disbursement under the scheme was also extended to June 30, 2022.

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“The retail and MSME segments, which together form around 40 per cent of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around. Stressed assets in these segments are seen rising to 4-5 per cent and 17-18 per cent, respectively, by this fiscal end. The numbers would have trended even higher but for write-offs, primarily in the unsecured segment,” said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings.

In terms of MSME loan accounts restructuring by the public sector banks (PSBs), the accounts restructured had grown 2.1X from 6,19,562 accounts involving Rs 22,650 crore as of January 31, 2020, to 13.06 lakh accounts involving Rs 55,333 crore as of June 26, 2021. The data was shared by the MSME Minister Narayan Rane in the Lok Sabha in July this year. The last year’s data was shared by former Finance Ministry MoS Anurag Thakur in the Rajya Sabha in March 2020.

In order to alleviate Covid stress among MSMEs, the Reserve Bank of India (RBI) in June this year had expanded the scope of restructuring facility for existing MSME loans from Rs 25 crore earlier to Rs 50 crore without a downgrade in the asset classification till September 30, 2021. On the other hand, the retail segment, which had a relatively stable run over the past decade, has been singed by the pandemic, with salaried and self-employed borrowers alike facing significant income challenges and higher medical expenses, especially in the second wave, the rating agency added.

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