MSME Pulse

The need of MSME PULSE

Information is key to decision making and if it is available at the right time, meaningful interventions can be made. 
Since structured data in respect of MSME is not available during the year, no early signs are available to help taking decisions to those who matter and make policies, be it bankers or policy makers. A comprehensive document based on close monitoring and tracking of MSME segment providing insights to policy makers, therefore, becomes imperative.
Till date, no such report based on a on a study done on over 5 Million active MSMEs having access to formal credit, with live credit facilities in the Indian banking system, is available.   
While there is some data available with respect to Banks, there is no data in respect to NBFCs.  Further, such data does not tell as to how many new entrepreneurs have accessed credit and what is the situation across different states. The launch of MSME Pulse, a quarterly comprehensive report, is an attempt to fill this gap and aims to provide the credit industry with trends and insights for making information oriented business decisions.

Key Findings of MSME PULSE 3rd edition (July - September 2018)

  • Total credit exposure in India stands at `101 Lakh Crores: Total credit exposure is `101 Lakh Crores as of Jun'18. MSME credit accounts for `22.8 Lakh Crores including credit to MSME entities and credit to individuals for business purposes. Large and MID Corporates account for `42.8 Lakh Crores. Keeping the `35.4 Lakh Crores of Agri & Retail exposure aside, the MSME credit exposure is 35% of the overall exposure to businesses.

  • Credit growth recovery on a firm footing:Overall Commercial Credit exhibits a Year-on-year (YOY) growth rate of 10.1% in Jun'18 quarter. Overcoming the low growth in Sep’17, Large (greater than `100 Crores exposure) segment has shown two consecutive quarters of high credit growth signaling sustainability in the large corporate segment. Micro (exposure less than `1 Crore) and SME (`1 Crore-`25 Crores) segments constitute `13.2 Lakh Crores credit exposure (23.5% of commercial credit exposure) with YOY growth of 21% and 14% respectively. In comparison it is 5.1% for MID (325 Crores-`100 Crores) and 8.9% for Large (greater than 100 Crores exposure) from Jun'17 to Jun'18.

  • Significantly lower NPA rates for loans taken in individual capacity: MSME NPA rates have remained stable and range bound. In the Micro entity segment, the NPA rate has moved from 8.9 % (in Jun’17) to 8.7 %(in Jun'18). In SME entity segment the NPA rate hovered between 11.2% (in Jun'17) to 11.5 % (in Jun'18). It is interesting to note that NPA levels in loans taken by individuals for business purposes are significantly lower and have remained under 2.5 %.

  • Private Banks & NBFCs continue to gain market share: Private Banks and NBFCs have further increased their market share in Micro and SME lending- from 28.1% and 9.6% in Jun'17 to 29.9% and 11.3% respectively in Jun'18. Share of Public Sector Banks (PSBs) has fallen from 55.8% to 50.7% in the same period.

  • TAT for lending improves further with NBFCs lending fastest: TAT for lending to MSME entities have shown a continuous improvement- from 32 days in 2016 to 26 days in 2018. While NBFCs have the lowest TAT in this segment, PSBs have demonstrated the most significant rate of improvement in TAT during this period-from 41 days in 2016 to 31 days recently. NBFCs have a significant TAT advantage in the 10 Lakhs- `10 Crores lending segment, which stems from the fact that NBFCs have a larger proportion of program based parameterized lending, while Private Banks and PSBs have large proportion of working capital loans with subjective assessment.

  • Increased TUCL Commercial Bureau usage has helped in TAT reduction: Credit Institutions across categories are increasingly accessing TUCL Commercial Credit Reports and this has significantly helped in reducing the TAT in credit sanctions to MSMEs. While the penetration rate of credit reports to credit sanctioned has increased from 30% in 2016 to 49% in 2018, the TAT decreased from 32 days to 26 days. PSBs have experienced the sharpest TAT improvement from 41 days to 31 days and they also have the best improvement in penetration rate of credit reports to credit sanctioned from 17% in 2016 to 36% this year.

  • New-To-Bank (NTB) segment largely contributes to MSME portfolio growth:A movement-of-book is studied for lenders in the MSME space to trace where the portfolios are moving and how the MSME books are growing. The study finds that lenders have to face an exit of 14%in their books over a one year period. During the same time the MSME borrowers continuing with the lender have only contributed to a 2% increase in the balances. The 20% growth in the overall MSME portfolio is driven by the NTB segment borrowers who contribute a chunk of 32% to the MSME portfolio growth.

  • Lower portfolio growth in PSBs is largely due to high attrition:Private banks achieve a 4% growth on continuing borrowers through 18% enhancements while losing 14% portfolio through exits. Hence with a NTB acquisition of 30%, private banks are able to grow the portfolio by 34%. In comparison PSBs face a 12% de-growth from exits and 3% de-growth in continuing borrowers. Hence, even after having an NTB acquisition of 24%, the overall portfolio growth is only at 9% in the MSME space. NBFCs have a much higher rate of exit and NTB acquisition but that is largely owing to the fact that majority of loans are term loans.