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 maker 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 7th edition (July – Sept 2019)
Quarterly Commercial credit growth has slowed down: Commercial credit which has been steadily growing over the past few years, has slowed down in the quarter ending Jun‘19. The Year-On-Year (YOY) commercial credit growth was at 10.4% in the quarter ending in Jun’19.However, a Quarter-on-Quarter (QoQ) comparison, suggests that Jun’19 quarter ending exposure levels are lower than Mar’19 quarter ending exposure by 2.6%. The total on balance sheet commercial lending exposure in India declined to ¬63.8 Lakh Crores in Jun’19 from ¬65.5 Lakh Crores in Mar’19.
Micro Loans (less than ¬1 Crore) and SME Loans (¬1 Crore - ¬25 Crores) have shown an annual growth of 12% in Jun’19 over Jun’18. While MID (¬25 Crores - ¬100 Crores) segment has grown merely at 3.6%, the Large (>¬100 Crores) segment shows 10.8% annual growth rate.
Marginal deterioration in asset quality: The NPA rate surged to 16.1% in Jun’19 from 15.5% in Mar‘19. The overall NPA rate of commercial lending was at 17.2% in Jun’18. NPA rates in Micro and SME segment have remained range bound between 8.5% (Jun’18) to 8.7% (Jun’19) and 10.6% (in both Jun’18 and Jun’19) respectively over last one year. Growth in credit exposure is proportional to gross NPA amount in Micro & SME segment and therefore the NPA rate remains range bound. Crucial to note that NPA rate in commercial lending was at a peak of 17.2% in Jun’18.
NBFCs lose market share: Non-Bank Financial Companies (NBFCs) that were steadily gaining market share across all commercial credit segments, could not maintain the pace in H1-2019.Public Sector Banks have traditionally been the largest lender to the MSME (Micro and SME Segment) sector. Over the few years, Private Banks and NBFCs have successfully managed to gain market share from Public Sector Banks on MSME lending. However, in the quarter ending Jun’19, the share of NBFCs has declined for the first time in the last two years. NBFCs have also witnessed an increase in NPA rates in the same period.
Negative credit growth for NBFCs in H1-2019: NBFC credit outstanding shows a 1% decline over a six month period (Jan - Jun’19) versus same period last year. NBFCs credit growth was at 17.9% last year from Jan’18 - Jun’18 period. The absolute NPA amount has also increased in the range of 25-28%. The NPA rate for NBFCs has escalated to 5.9% in the quarter ending Jun’19 from 4.4% in Jun’18. Slowdown in credit growth coupled with the ongoing crisis the NBFC industry is facing, has contributed to the decline in asset quality for the segment.Rate of default on rise, even though acquisition quality has improved: The number of loan acquisitions in H1-2019 has reduced by 8% over H1-2018. Even though latest acquisitions are better quality, the overall rate of default has increased in Jun’19 as compared to previous quarters. Analysis also reveals that the ratio of total loans sanctioned over total enquiries made by NBFCs has also reduced, indicating a decline in approval rate.
Building Credit Risk in MSMEs of Auto Industry: Auto industry has historically been one of the best performing industries. While some of the other industries, like Textiles and Construction have seen a rise in the NPA rates, Auto industry continues to be the lowest delinquent industry. About 45% of MSMEs in Auto industry belong to CMR-1 to CMR-3 compared to 38% for MSMEs in other industries. Change in the riskiness of Auto Industry MSMEs is measured using their CMR (CIBIL MSME Rank) transition between Jun’17 and Jun’19. The CMR transition matrix for Auto industry MSMEs between June’17 - June’18 had a 2-notch downgrade in CMR-1 to CMR-3 between 12% and 15%, this has increased between 14% to 24% in the June’18 to June’19 period. This indicates that the good MSMEs in Auto industry have downgraded more than last year.