Structural Interventions

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 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 January 2020 edition

Commercial credit growth has slowed down in recent quarters: Commercial credit, which has been steadily growing over the past few years, has slowed down in the past few quarters. The total on-balance sheet commercial lending exposure in India is `65.0 Lakh Crores in Sep’19. The Year-On-Year (YOY) commercial credit growth was at 8.1% in the quarter ending in Sep’19. However, the growth rate for the period Dec’17 to Dec’18 was 16.2%, Mar’18 to Mar’19 was 12.6% and Jun’18 to Jun’19 was 14.8%. On a QoQ comparison, Sep’19 quarter ending exposure levels are higher than Mar’19 and Jun’19 quarter ending exposure. YoY growth in Sep’19 has been lowest across all segments when compared with annual credit growth of other quarters.

MSME Segment with aggregate credit exposure of up to `50 Crores, constitutes `18.3 Lakh Crores outstanding (~28% of commercial credit outstanding).Large corporates with aggregated credit exposure of more than `50 Crores, account for `46.7 Lakh Crores (~72% of commercial  credit outstanding).Micro (less than `1 Crore), Small (`1 Crore-`15 Crores) and Medium(`15 Crore-`50Crores) segments showed a YOY growth of 7.7%,4.6%,1.9% respectively for the period Sep’18 to Sep’19.


Marginal improvement in commercial asset quality: The overall NPA rate of commercial lending was at 16.8% in Sep’19 marginally lower than 17.0% in Sep’18. At a time when commercial credit growth was slowing down, grown by 8.1% over the year, gross NPA has increased by only at 6.8% resulting in lowering of NPA rate by 20 basis points. The gross NPA amount increased from `10.2 Lakh Crores in Sep’18 to `10.9 Lakh Crores in Sep’19. Crucial to note that NPA rate in commercial lending was at a peak of 17.5% in Jun’18, but because of various reform measures, it

came down to 16.8%. In the MSME segment, NPA rates have increased from 11.7% in Sep’18 to 12.2% in Sep’19.


NBFCs lose market share along with deterioration in asset: Public Sector Banks who traditionally have been the largest lender to the MSME Segment, account for 60% of lending in Micro segment. The share of PSBs and Private Banks in Small segment of borrowers is comparable, with each having a market share of ~44%. NBFCs’ share in the small and medium sized enterprises’ lending segment is higher compared to the smaller and less formal MSME

Segment. Over the last 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 had declined for the first time in the last two years. NBFCs have also witnessed an increase in NPA rates in the quarter ending Sep’19.


MSME Lending has increased for low Vintage, High Risk Borrowers and more towards smaller sized MSMEs: Changing profile of acquisition is measured using factors like vintage, CMR distribution and size of the borrower. Further, impact of change in borrower profile is measured through the bad rate of borrowers observed within a year of sanction and renewal. Study reveals that the bad rate on MSME borrowers has increased from 2.94% to 3.02% for two acquisition periods (Jul-Sep’17 and Jul-Sep’18).Factors that contribute to marginally higher bad rate are (i) Acquisition in Micro segment increased to 66.7%, for the acquisition period Jul-Sep’18 from

61.9% in Jul-Sep’17. (ii) Vintage distribution of acquired borrowers suggests that share of lending has increased towards low vintage borrower in Q2-FY19. (iii) CMR distribution of acquisition shows that proportion of borrowers acquired in highest risk segment has increased from 13.5% to 15.7%, contributing to the increase in bad rate.

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