YoY bank credit growth to MSEs highest in February even as share in overall credit continues to decline

As of March 27, 2020, bank credit to MSEs stood at Rs 10.80 lakh crore, as per RBI’s April bulletin.

Credit and Finance for MSMEs: The year-on-year growth in gross bank credit deployment to micro and small enterprises (MSEs) for the month of February 2021 was highest during the 11-month period of the financial year 2020-21. Rs 11.31 lakh crore deployed in bank credit to MSEs in February was up by 6.9 per cent from Rs 10.58 lakh crore deployed in February 2020, according to the April bulletin by the Reserve Bank of India. The previous high was 6.8 per cent for October 2020. The February deployment was also up from 6.4 per cent growth registered in January 2021. The credit deployed in January stood at Rs 11.48 lakh crore vis-a-vis Rs 10.79 lakh crore in January 2020. Importantly, the credit growth in February 2021 since March 2020 stood at 4.8 per cent, down from 6.5 per cent in January even as the growth had remained contracted till December 2020. As of March 27, 2020, bank credit to MSEs stood at Rs 10.80 lakh crore.

“RBI has been very proactive in listening to MSMEs and seeking inputs in terms of support required. There was a fair amount of optimism particularly among medium enterprises while small enterprises were crawling and continue to struggle and many of them don’t even qualify for credit intake during Covid. However medium enterprises had started recovering and that’s why offtake in February was good. What interesting to see will be offtake for March and April,” Rajiv Podar, Managing Director, Podar Enterprise and President, Indian Merchants’ Chamber (IMC) Chamber of Commerce and Industry told Financial Express Online. IMC has 5,000 direct members and 150 affiliated chambers reaching out to 4 lakh businesses out of which over 90 per cent are MSMEs. Podar Enterprise is an advisory and consulting firm with businesses in education, housing and sanitation, sports, water, etc.

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However, the share of MSEs in the overall gross bank credit continued to decline. Out of Rs 95.69 lakh crore gross bank credit outstanding as of February 26, 2020, MSEs’ share stood at 11.8 per cent down from 12.09 per cent share in the overall Rs 94.97 lakh crore gross bank credit deployed in January 2021 and 12.11 per cent in December 2020. According to the Monetary Policy report this month, bank lending to MSMEs has improved with increased utilisation under the government’s Emergency Credit Line Guarantee Scheme (ECLGS) to meet working capital requirements. As of February 28, 2021, the utilisation under ECLGS stood at 82 per cent.

Financial Express Online had reported last month that the amount of loan sanctioned under the ECLGS scheme stood at Rs 2.46 lakh crore till February-end, as per the information shared by the MSME Minister Nitin Gadkari in a written reply to a question in the Rajya Sabha. Out of the 92.27 lakh total borrowers under ECLGS as of February 28, 87.50 lakh (95 per cent) borrowers were MSMEs. While the government had recently extended the ECLGS scheme till June 30, 2021, it might enhance banks’ exposure to stressed MSME loans amid the second wave of the Covid pandemic, according to rating agency Fitch Ratings. “Extension of the MSME refinancing scheme until 30 June 2021 will alleviate short-term pain, but potentially add to the sector’s exposure to stressed MSMEs, which was around 8.5% of loans (9MFY21) as per Fitch’s estimate,” the agency said in a statement.