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MSMEs out of the woods? Credit improves, NPAs fall as small businesses turn around

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Published: April 12, 2019 1:15:25 PM

The sector is the backbone of Indian economy, employing around 11 crore people, and contributing more than 45 percent of total manufacturing output, 9 percent to GDP and more than 40 percent of total exports of the country.

Difficult days of MSME sector seem to be coming to an end, with the overall health of the sector seeing speedier improvement in lending intensity, according to a report. Despite its significant importance in economic growth of the country, the micro, small and medium enterprises (MSME) sector in India has faced setbacks in the past due to one reason or the other. However, the situation seems to be improving with regard to credit and NPAs, show recent data.

Total credit disbursement to MSMEs as a proportion of the GDP has increased from 9.6 percent in December 2013 to 13.6 per cent in December 2018, said the latest TransUnion CIBIL-SIDBI report.

India has the second largest base in the MSME sector after China. The sector is the backbone of Indian economy, employing around 11 crore people, and contributing more than 45 percent of total manufacturing output, 9 percent to GDP and more than 40 percent of total exports of the country.

Since 2014, the Modi government has taken many initiatives to give a boost to the sector such as Make in India, relaxation in FDI, incentives of export, easy and low cost credit etc.

There has been an annual growth of 19.3 percent in the total balance outstanding to the MSME — both entities and individuals, over the last five years. Of the total Rs 111.1 lakh crore balance sheet credit exposure in India till December 2018, the MSME credit accounts for Rs 25.2 lakh crore, the report said. Commercial credit growth has continued to increase at 14.4 percent on a yearly basis in the in the quarter ended December 2018, the report added.

The report also noted a slight reduction in the non-performing asset (NPA) belonging to the large segment declining from 20 percent in June 2018 to 19 percent in December 2018 and those belonging to the mid-segment from 16.5 percent in June 2018 to 16.5 percent in December 2018.

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“MSME credit growth acceleration along with a decline in NPAs is a very promising indicator of the prospective development in the segment and thereby economic growth. It also indicates the growth in new-to-credit MSME borrowers, implying that MSMEs are increasingly seeking access to finance from the credit sector. These trends bode well for the ‘ease of doing business’ in India as more and more MSMEs seek credit from the regulated market and this also helps foster financial inclusion,’’ Mohammad Mustafa, Chairman and Managing Director, Small Industries Development Bank of India (SIDBI), told The Indian Express.

However, the increased lending is giving rise to a concern too. The increasing pace of lending needs to be checked if the banks and regulators need to avoid any possibility of stress in the future, MD and CEO of TransUnion CIBIL Satish Pillai told The Indian Express. While lenders should monitor their portfolios constantly for loan stacking, leverage and debt build-up, the regulators must keep systemic risks in check, he added.

Pillai further suggested to facilitate greater access of trade data to credit information companies through TReDS (Trade Receivables Discounting System) and mandatory reporting by banks of factoring/bill discounting to bureaus.

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