Credit and finance for MSMEs: The asset quality of the MSME portfolio of all scheduled commercial banks (SCBs) improved significantly during the financial year 2022-23 with the gross non-performing assets (GNPA) ratio declining from 9.3 per cent in March 2022 to 6.8 per cent in March 2023, said the Reserve Bank of India’s latest Financial Stability Report. Importantly, the improvement in the MSME asset quality profile coincided with the expiry of regulatory forbearance and restructuring schemes introduced since 2018.
Quarter-on-quarter, the GNPA ratio improved from 7.4 per cent in December 2022 and 7.7 per cent in September 2022 and 9.8 per cent in June 2022.
The GNPA ratio for MSME loans below Rs 25 crore, which are particularly vulnerable to slippage, also declined sequentially from 7.2 per cent in March last year to 6.7 per cent in March this year, the report noted.
Also read: MSME loan default: Lakhs of micro units turn NPAs under govt’s ECLGS scheme; check details
In terms of special mention accounts (SMAs), the share of SMAs in the MSME portfolio of SCBs also dropped from 11 per cent in March 2022 to 8.6 per cent in March 2023. SMAs are accounts that show signs of incipient stress leading to the borrower defaulting in servicing the debt. While SMA-0 are accounts having payments partially or wholly overdue for 1-30 days, SMA-1 and SMA-2 accounts have payments overdue for 31-60 days and 61-90 days respectively.
The MSME asset quality profile improved across three SMA buckets. SMA-0 improved from 6.4 per cent to 5.1 per cent while SMA-1 improved from 3.5 per cent to 2.6 per cent and SMA-2 improved from 1.1 per cent to 0.9 per cent between March 2022 and March 2023.
“ECLGS definitely helped the MSME sector to the extent that interest burden came down for the borrowers while normally they pay over 12-13 per cent of interest. So, the capping of interest rates under ECLGS supported MSMEs. Moreover, the moment the economy opened up after Covid, there was a case of MSMEs coming back into action and getting linked back to the supply chain of larger companies. Therefore, there was certainly an improvement in the MSME portfolio as enterprises were able to service their credit better. The asset quality should further improve ahead,” Madan Sabnavis, Chief Economist, Bank of Baroda told FE Aspire.
The government had capped the interest rate under ECLGS at 9.25 per cent for banks and financial institutions and 14 per cent for NBFCs to support MSME borrowers with relaxed repayment terms.
Particularly post-Covid, ECLGS had helped a number of MSMEs to survive and recover from the impact of the pandemic. The scheme, which expired on March 31, 2023, saw almost 90 per cent of the total around Rs 2.91 lakh crore disbursals from SCBs. Contact-intensive services such as hotels and restaurants, travel agents, tour operators, private bus operators, car repair services and more; and traders were the major sectors availing ECLGS loans.
Also read: MSME NPAs drop to 12.5% while disbursements jump 24%: SIDBI-TransUnion Cibil report
However, out of the total accounts and amount disbursed under ECLGS, one-sixth or 18.8 per cent of the accounts and one-twentieth or 5.5 per cent of the amount turned NPA, the report added. Stress was predominant in the micro enterprises segment, with nearly one-fifth or 20 per cent of borrowers and a tenth or 9.4 per cent of the amount disbursed turning delinquent. In comparison, 11.7 per cent of borrowers and 5.3 per cent of the amount disbursed to small enterprises had turned NPA while in the medium enterprise category, 3.8 per cent of borrowers and 3.5 per cent of the amount disbursed had turned delinquent.
Sector-wise analysis of ECLGS NPAs indicated that services and trade, which formed one-third of the ECLGS disbursements, remained stressed and accounted for nearly half of the total delinquency under the ECLGS.
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