In the last one year, Non-Performing Assets (NPAs) in Gujarat have risen by over 25 per cent to Rs 39,289 crore. Bankers in the state say defaults among both MSMEs and corporates have contributed to this rise of bad loans. The loan defaults were seen as effects of demonetisation and Goods and Services Tax (GST).
At the end of September 30, 2018, the gross NPAs of banks in the state stood at Rs 39,289 crore which is 6.88 per cent of the total loans amounting to Rs 5,60,870 crore, stated the latest report presented during the State Level Bankers’ Committee (SLBC) meeting that was held on Thursday. A year ago, the quantum of bad loans stood at Rs 31,318 crore at the end of September 2017, which was 6.39 per cent of the gross advances.
“Close to Rs 30,000 crores of NPAs in Gujarat are corporate loans. This also includes all loans over Rs 5 crore taken by MSMEs who fall in the priority-sector for the banks, “ said Ramesh Singh, executive director of Dena bank, who headed the meeting. Currently, there is an estimated Rs 2.5 lakh crore of corporate loans in Gujarat, of which about 11 per cent are NPAs. As per RBI guidelines, any loan (both in priority and non-priority sectors) above Rs 5 crore are treated as corporate loans, said bankers.
“Many times an account goes bad because there are factors beyond the control of the borrower. There are equal number of people in the market who also misuse this facility,” Singh said, adding that people take multiple loans on the same asset. The poor financial health of both MSMEs and larger corporates in Gujarat does not augur well for the state government, which is looking to attract major investments in the upcoming Vibrant Gujarat summit in January, 2019. Bad loans among MSMEs have risen by almost 35 per cent in the last one year. NPAs among small entrepreneurs in Gujarat stood at Rs 8,526 crore at the end of September, 2019 which is a sharp rise from Rs 6,321 crore that existed during the same period in 2017.
“In Gujarat, the highest number of defaulters are in the MSME sector. For instance, there is a number of ginning mill loans that have turned NPAs in Rajkot where a number of banks are stuck. If I talk only about Dena Bank then about Rs 200 crore of loans extended to ginning mills have turned into NPAs,” Singh said after the SLBC meeting. “The MSME sector has not been able to come out of demonetisation and GST (Goods and Service Tax). Apart from ginning mills, loans extended to cold storages in Mehsana, textile sector, real-estate and diamond business (loans serviced from Mumbai) have also turned into NPAs in Gujarat,” said bankers. “MSMEs are sub-suppliers to larger corporates operating in the textile and infrastructure sectors. So if there is a slowdown among the larger corporates, MSMEs are bound to get affected,” Singh added.
The state government has been in a denial mode regarding the health of MSMEs in the state. It recently claimed that the sector has registered an average 11 per cent year-on-year growth during the last five years. However, industry bodies like the Gujarat Chamber of Commerce and Industry (GCCI) and Federation of Industries and Associations have voiced concerns about the deteriorating health of the MSME sector and said that the production has dipped in the last 18 months. Despite the rise in NPAs among MSMEs, banks continue to lend to this sector mostly under government pressure. In last one year (September 2017 to September 2018), there has been nearly 28 per cent rise in amount of loans extended to MSMEs in Gujarat. On Wednesday, to appease the smaller entrepreneurs, Gujarat government announced sops that will help them get faster clearances for their projects.