As risk-averse banks shy away from lending, an analysis of loan defaults reveals that delinquencies among micro, small and medium enterprises (MSMEs) continue to be lower than large corporations. Credit bureau TransUnion Cibil has said that two out of three MSMEs entered this lockdown with structurally strong positions. Of these, about half are very strongly positioned.
The total lending to businesses in India stood at Rs 64.45 lakh crore as of January 2020, of which the MSME segment holds a Rs 17.75-lakh-crore credit exposure. The large corporates segment’s credit exposure is at Rs 46.7 lakh crore and this has had a year-on-year expansion of 6.3%. In January, the non-performing asset (NPA) rate for large corporates was at 19.7%, while the NPA rate in the MSME segment stood at 12.5%.
The NPA rate for the micro segment at 9% has been lower than the small and medium segments, which was at 11%. NPA rates are highest for medium-sized MSMEs at 18% across all lenders. These findings strengthen the case for support of credit flow to the MSME segment, which is facing a liquidity issue due to the absence of sales even as these enterprises have to meet fixed costs of salaries, rent and maintenance.
TU Cibil said public sector banks accounted for 40% of fresh disbursals in 2019 in the micro segment, followed by private banks (38%) and NBFC (22%). This segment saw fresh credit disbursals worth Rs 92,262 crore in 2019. Many lenders expect the government to announce a special package for the MSME sector to support flow of credit. Punjab National Bank has launched an MSME outreach programme where executives have contacted 1 lakh MSME borrowers to update them about a Covid emergency finance scheme. Additionally, they are told about the facility to receive finance against outstanding bills under the online platform of Trade Receivables Discounting System (TReDS). TU Cibil has calculated the structural strength of MSMEs by using its Cibil MSME Rank (CMR), and credit utilisation of MSMEs are used to identify and map their position.
Structurally stronger MSMEs are expected to be in a position of low leverage and high liquidity prior to the pandemic situation. “This hypothesis is back-tested under two earlier stress scenarios the first being the goods and services tax (GST) implementation period starting July 2017, while the second covers the period starting July 2018, which includes the NBFC liquidity crunch and MSME credit growth slowdown after March 2019. Structurally strong MSMEs are better positioned to survive the current pandemic situation and emerge stable. These MSMEs are the most eligible to receive financial assistance from credit institutions,” said TU Cibil MD and CEO Rajesh Kumar. “There is an opportunity here for banks and financial institutions to identify and fund these entities and build a healthy portfolio. Such targeted interventions can help refuel the economy through these unprecedented times, while ensuring that portfolio risk
is under control.”