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Bank loans to MSMEs record dip, many fail to meet institutional credit target

Lending to the MSME sector comes under priority sector with banks mandated to lend to these units along with agriculture and other allied sectors.

Written by Parthasarathi Biswas | Pune |
June 22, 2021 10:07:14 pm
Many said one of the reasons why banks had failed to fulfil their credit target was the hesitancy on part of bank branches to lend to this sector.

The ongoing pandemic has had an adverse impact on micro, medium and small scale enterprises (MSME) with many reporting financial constraints. In what is an indication towards serious financial issues for the sector, data shows that bank loans to the sector have recorded a steep year-on-year dip.

Lending to the MSME sector comes under priority sector with banks mandated to lend to these units along with agriculture and other allied sectors. For the financial year 2019-20, banks were given a target of Rs 2,35,376 crore for lending, of which Rs 2,01,044 crore (85 per cent) was actually disbursed. For the fiscal 2020-21, however, out of Rs 2,48,489-crore target, banks lent Rs 1,57,757 crore (63 per cent). Minutes of a State-level Bankers Conference, the apex body of banks that determines credit outlay in the state, has blamed the pandemic and subsequent lockdown for this dip in institutional credit.

On their part, MSMEs agree that getting a loan from banks has become difficult. Maharashtra has 17.67 lakh registered MSMES, of which 15.60 lakh are micro units, 1.99 lakh are small and 0.08 lakh are medium industries. The sector, to date, has seen an investment of Rs 2,38,543 crore and has employed 91.01 lakh people in the state.

Based on investment and turnover, enterprises are classified as micro (investment not over Rs 1 crore and turnover not more than Rs 5 crore), small (investment not more than Rs 10 crore and turnover not more than Rs 50 crore) and medium (investment not more than Rs 50 crore and turnover not more than Rs 250 crore) units.

Many MSMEs said the inability to raise adequate finances from financial institutions forced them to go to private moneylenders, who gave loans at a much higher interest rate. Most units operate on wafer-thin margins and, with the pandemic putting a brake on their earnings, these units are now under severe stress. Most MSMEs pointed out their precarious financial condition and asked for government intervention to help them out.

Many said one of the reasons why banks had failed to fulfil their credit target was the hesitancy on part of bank branches to lend to this sector. Compared to bigger units, MSMEs have lower capital requirement, but if that is not met on time, they face problems.

Prashant Girbane, director-general of Mahratta Chamber of Commerce Industries and Agriculture (MCCIA), talked about the hesitancy on part of banks to lend to the sector, for fear that the accounts might turn into non-performing assets (NPA). “Also, in some cases, the sector has been reserved in increasing their loan books given the uncertainty of business,” he said.

Girbane said the MCCIA was holding regular loan camps to apprise and help the sector access loans. “We shall continue doing the needful,” he said.

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