Formalising MSMEs: New private banks lead MSME lending

By: |
New Delhi | Published: August 25, 2018 1:53:32 AM

With the introduction of the GST, micro, small & medium enterprises (MSMEs) are increasingly getting formalised as well as digitised, a trend that will boost lending to the segment.

msmes, industryAdvances to small enterprises are currently witnessing the highest growth among sub-segments.

With the introduction of the GST, micro, small & medium enterprises (MSMEs) are increasingly getting formalised as well as digitised, a trend that will boost lending to the segment. Lending from new private banks to MSMEs has grown at an impressive rate of 22% in FY18 and the total value of MSME digital lending is likely to touch $250 billion in next five years, according to the BCG-IBA-Ficci Annual FIBAC Productivity Report on Indian Banking Industry 2018.

Advances to small enterprises are currently witnessing the highest growth among sub-segments. The percentage of MSMEs using digital channels has increased to 47% after GST, as compared with 41% before the introduction of GST. At present, digital lending accounts for only 4% of total MSME lending. According to the report, it is expected to rise to 21% over the next five years. This significant jump will close the gap with digital retail lending, which is expected to reach around 48% of total retail lending in five years.

The report underlines that with a high degree of variability in the quality of assets in the MSME segment and the small ticket-size of advances, success in this market will belong to players who have the resources and capabilities for reliable credit underwriting, and a comparative cost advantage through end-to-end digitisation.

Public sector banks are showing a much higher exposure to micro enterprises, as compared to private sector banks. In MSME advances, loans to medium-sized enterprises have highest gross NPA of 16%. Despite high NPAs, banks continue to increase lending to medium enterprises. The report cautions there is a need to be vigilant in this segment.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.