MSME Credit Continues to Grow at a Healthy Rate Signalling Rapid Revival

The sixth edition of TransUnion CIBIL- SIDBI MSME Pulse Report shows continued growth at 12.4% year-on-year (YOY)in the quarter ending Mar’19. Total debt in India has increased at a CAGR of 13.3% to reach the level of INR 253 trillion in a five year period from Mar’15 to Mar’19. Total debt includes government debt, debt of corporate entities and individual borrowers. The growth in aggregate debt in the past four years is powered by a 22% CAGR growth on lending to individuals (including consumer loan, business loan to individuals and other loans), 13.4% CAGR of lending to commercial entities (including MSME and corporate entities) and a 10.6% of government debt. The comparatively higher rate of individual lending has translated into a major shift in the composition of the lending industry in favour of individuals.

A marked decline in NPAs (non-performing asset) adds a silver lining to these growth trends. The overall gross NPA rate in commercial lending stood at 16.0% in Mar’19– a significant lowering from 17.2% during the same period last year. NPA rate had reached its peak in the period between Mar’18 to Jun’18 for medium and large segment. However, after experiencing along period of stress, the commercial credit sector is on the course to recovery as the NPAs have finally started showing a gradual decline post Jun’18 quarter.

Highlighting the findings from this edition of MSME Pulse, Mr. Mohammad Mustafa, Chairman and Managing Director, SIDBI said:“The sustained growth in commercial lending along with marked lowering of NPAs is a very promising indicator of MSME sector growth which plays a pivotal role incatalysing economic development. Even more interesting is the trend on increasing rate of individual lending for businesses which brings a major shift in the composition of the lending industry in favour of individuals. These findings bode well towards the ease of doing business in India with MSMEs being able to get faster and easier access to credit for driving business growth.”

This edition of MSME Pulse covers a study on state-wise performance analysis on MSME lending under “Credit Opportunity” and “Risk Index” parameters based on a model of ranking the potential of Statestowards extending credit to MSME corporate entitiesdefined basis the aggregate credit exposure up to ₹50 Crores. The MSME Pulse ranking model looks at market size in terms of total credit exposure, accounts and consumers. The YOY incremental changes are also taken into consideration for identifying the market growth for the period starting FY15 to FY19.As part of risk index, delinquency and score quality (risk profile) of customers in the geography is observed.  The study shows that Gujarat has emerged as the top ranking state in terms of performance and growth potential for MSME lending in India followed by Andhra Pradesh, Haryana, Karnataka and Delhi. Other states with high potential in MSME corporate lending are Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and Jammu & Kashmir.

Commenting on this finding on state wise performance, the Managing Director and CEO of TransUnion CIBIL, Mr. Satish Pillai, said: “The state-wise performance insights throw significant light on the credit opportunity, potential of MSME growth and risk predictors across India. Gujarat has consistently ranked no. 1 over the last four years(FY16 to FY19). While Maharashtra ranks highest on market size, itsNPAs are also high indicatingincrease in credit risk. Close monitoring of MSME portfolios and timely risk identification and control measures are crucial towards achieving healthy MSME growth and sustained economic development.”

About SIDBI Small Industries Development Bank of India (SIDBI), is the Principal Financial Institution for the Promotion, Financing and Development of the Micro, Small and Medium Enterprise (MSME) sector and for Co-ordination of the functions of the institutions engaged in similar activities. The business domain of SIDBI consists of Micro, Small and Medium Enterprises (MSMEs), which contribute significantly to the national economy in terms of production, employment and exports. SIDBI meets the financial and developmental needs of the MSME sector with a Credit+ approach to make it strong, vibrant and globally competitive.

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