Findings from the latest edition of TransUnion CIBIL-SIDBI MSME Pulse Report indicate a resurgence in MSME credit disbursals since the launch of the Emergency Credit Line Guarantee Scheme (ECLGS) in May this year. The total on-balance sheet commercial lending exposure in India stood at ₹67.03 lakh crores in June 2020, marginally lower than ₹69.77 lakh crores in June 2019. Of this, the credit exposure for the MSME segment stood at ₹16.94 lakh crores as of June 2020.
The report shows a slowdown across most MSME sub-segments other than those in the Very Small and Micro1 categories. A marginal increase in NPA (non-performing assets) rates is observed in the MSME segment which rose to 12.8% in June 2020 from 11.4% in June 2019. Within the MSME sub-segments, the NPA rates are generally higher for sub-segments with larger ticket sizes.
ECLGS Boost Drives Recovery in MSME Lending
The Atmanirbhar Bharat initiative announced in May 2020, provisioned for a 100% credit guarantee on MSME loans through the ECLGS. Since its launch, the positive impact of ECLGS on MSME lending is evident. The number of MSME credit disbursals by lenders spiked significantly compared to the lows during the lockdown. MSME Pulse analysis shows that during the lockdown phase, credit disbursals across all lender groups were impacted. After the ECLGS launch, Public Sector Banks (PSBs) were the forerunners to implement and execute the scheme which resulted in the credit disbursal amount by PSBs rising to 2.6 times higher than February 2020. Even Private Sector Bank credit disbursals in the MSME segment for June 2020 are back at February 2020 levels.
Speaking on the findings of MSME Pulse, the MD & CEO of TransUnion CIBIL, Mr. Rajesh Kumar, said: “The ECLGS scheme provides a window of opportunity for banks to astutely drive access to finance for deserving MSMEs. It is evident that the scheme has been aggressively implemented by lending institutions and the well-coordinated efforts of the government and lenders has revived credit infusion to the MSME segment. Now, as the economy reopens, it is more important than ever to accurately find and fund deserving MSMEs. Many finer nuances of the MSME lending ecosystem have evolved in the post-COVID-19 era which are covered in detail in this edition of MSME Pulse.”
Commenting on the findings of the report, Mr. Manoj Mittal, Deputy Managing Director, SIDBI said, “Resurgence of the MSME sector is paramount for bringing our country’s economy back on track. The credit industry has a pivotal role to play towards driving access to finance for deserving MSMEs while ensuring that the credit risk is mitigated for maintaining overall balance and long term stability of the ecosystem. By capitalizing on digital and information infrastructure and implementing data backed processes and solutions, the lenders will be able to achieve profitable and sustained growth of MSME portfolio.”
Structurally Strong MSMEs Continue to be Resilient
The MSME Pulse analyzed the early signs of stress like missed payments and rising utilization rates for MSME borrowers. These early signs for MSME borrowers are observed over a short window of four months of the post pandemic time i.e. March 2020 to June 2020. The findings of the study show that the super-prime segments of CMR-1 to CMR-3 as of February 2020 have missed relatively the least number of payments during the COVID-19 times between March 2020 and June 2020. Similar trends are observed for changing utilization rates i.e. super-prime segment MSMEs have lower migration to higher utilization rate buckets. These early signs show that structurally strong MSMEs continue to be relatively more resilient even through the economic shock posed by the pandemic.
Mapping MSME Credit Landscape Changes Post Pandemic
The COVID-19 pandemic and resultant disruptions have brought about significant behavioral changes in the MSME lending ecosystem. Factors that are driving these changes include MSME customer behavior, customer profile and response of the lending industry to the evolving trends.
On studying changes at a geographic level, it is observed that MSME credit disbursals in metro cities were most impacted during April and May 2020, however these have bounced back in June 2020 after the ECLGS implementation. Urban, semi-urban and rural regions had a relatively lower impact during April and May 2020 but are still significantly lower compared to their pre-COVID-19 levels. Again, post ECLGS all these regions experienced a steep increase in credit disbursals in June 2020, owing to the relaxation in lockdowns in these geographies.
Delving further into state wise changes in the MSME credit landscape, the report observed that while at an overall national level there was significant growth in MSME credit disbursals driven by ECLGS, for states like Maharashtra and Delhi disbursal levels in June 2020 had the lowest rise compared to February 2020. The credit disbursals in June 2020 for the states of Bihar, Punjab, Kerala and Jharkhand have increased fourfold compared to those in February 2020.
This edition of MSME Pulse also analyzed how lenders reacted to emerging credit demand post COVID-19 lockdowns. To map this, it classified MSME borrowers based on their existing relationship with the lenders. Borrowers who had an existing commercial credit relationship with the lender were tagged as Existing-to-Bank (ETB); borrowers withno commercial credit relationship with the existing lender but having a commercial credit relationship with another lender in the Industry were tagged as New-to-Bank (NTB); and borrowers with no commercial credit relationship with any lender were tagged under New-to-Credit (NTC). It was observed that even though the proportion of the NTC enquiries in total commercial credit enquiries have recovered almost to pre-pandemic levels in July and August 2020, it had decreased significantly during April to June 2020. The ETB enquires proportion increased significantly during April to June 2020 period but the July and August 2020 trend showed resuming to February 2020 levels. These trends of ETB, NTB and NTC enquiries are consistent across all lender types of PSBs, Private Banks and Non-Banking Financial Companies (NBFCs).
The report also studied the CIBIL MSME Rank (CMR) distribution of enquiries during post-COVID-19 lockdowns and identified movement towards higher risk. CMR distribution for PSBs, Private Banks and NBFCs have reduced for super-prime MSMEs in CMR-1 to CMR-3 and increased for sub-prime MSMEs in CMR-7 to CMR-10 in August 2020 compared to February 2020. NBFCs had the highest increase in sub-prime enquiries – from 15% in February 2020 to 24% in August 2020, and PSBs showed the highest drop in super-prime enquiries – from 38% in February 2020 to 32% in August 2020. However, the month-on-month trajectory of CMR distribution for all lender groups showed a trend of resuming to February 2020 levels.
This edition of MSME Pulse also analyzed sector-wise risk assessments of MSME borrowers to understand the structural strength of MSMEs in each sector. The sectors for which the analysis is conducted are taken from RBI’s ‘Report of the Expert Committee on Resolution Framework for Covid-19 related Stress’. Sector wise CIBIL MSME Rank (CMR) distribution shows that logistics, hotel-restaurant-tourism and mining have relatively lower proportion of super-prime MSMEs while sectors like chemical & pharmaceuticals, manufacturing and auto components, manufacturing & dealership have relatively largest share of super-prime MSMEs. However our analysis also shows that a large majority of MSMEs across sectors are structurally strong and stand better placed in the current economic challenges.
“The last six months have brought many changes to the MSME lending ecosystem. And all the ecosystem players have been adapting to the new normal of lending to MSMEs with a continued strength and flexibility. As we progress further, the new normal will unfold new challenges for the ecosystem players. The role of closely monitoring the finer nuances of MSMEs at an industry level and taking timely and optimal interventions will be the cornerstone of sustained growth for lenders, MSMEs and the economy in the long run,” concluded Mr. Rajesh Kumar.