MSME non-performing loans remain flat over the past three quarters

NBFCs have not been negatively impacted much by MSME defaults, with gross NPLs remaining below 5 per cent.

As per news reports, the asset quality in the micro, small and medium enterprises (MSME) segment worsened post-demonetisation and GST, but the good sign is that MSME non-performing loans (NPLs) have been stable for the past 2–3 quarters. The gross NPL for the micro (less than ₹1 crore) and SME (₹1–₹25 crores) stood at 8.7 per cent and 11.5 per cent, respectively, at the end of the second quarter of FY 2018–19, remaining largely flat compared to the preceding quarters.

Meanwhile, the private banks and non-banking finance companies (NBFCs) have not been affected much from MSME defaults with gross NPLs remaining below 5 per cent. In fact, the Reserve Bank of India, has permitted a one-time restructuring of MSME loans for the exposure of up to ₹25 crore category and below ₹10 lakh category.

As per reports, the asset quality in the MSME segment has been largely stable or private banks and has increased slightly for NBFCs. Moreover, the NPL ratio for public sector banks however has been quite high and has also steadily increased over the past two years. The NPLs are at about 15 per cent for public sector banks.

Statistics show that MSMEs accounted for around 25 per cent of the commercial lending in India at the end of 2017–2018. Of this, loans of up to ₹25 crore totalled around ₹13 lakh crore or nearly 13 per cent of loans. To add on, lending to the MSME segment has been recording about 18 per cent year-on-year growth.

The growth is skewed towards the lower end of the spectrum where the ticket size is lower than ₹50 lakh, say analysts who are tracking banks, and they add, “with a gradual push towards formalisation and higher availability of income disclosures on account of GST, credit growth has ramped up in recent quarters. NBFCs and private banks have grown faster than public banks.”

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