The government’s push for manufacturing and an Atmanirbhar Bharat comes amidst a near collapse of the industry demand for bank credit since 2016, when the Centre announced its war on black money though demonetisation. As per data released by the Reserve Bank of India (RBI), while the bank credit outstanding to the industry grew marginally by 0.7 per cent to Rs 29.05 lakh crore in the year ended March 2020, over the last four years, credit outstanding to the industry has expanded by just Rs 1,74,451 crore, or at a compounded annual growth rate of 1.56 per cent.
In fact, credit demand by the industry is significantly lower when compared to the other two key segments, services sector and the personal loan category, which have witnessed a 4-year CAGR of 13.9 per cent and 16.4 per cent, respectively. Even the gross bank credit outstanding that grew at 6.8 per cent in FY20 witnessed a 4-year CAGR of 8.64 per cent.
While the government last week announced a credit guarantee scheme for bank lending to the MSME sector and others, data shows that micro and small industries have, over the last four years, witnessed an even slower credit expansion.
While large industries saw their credit expand by Rs 1.73 lakh crore, or at an annual growth rate of 1.9 per cent between April 2016 and March 2020, micro and small industries saw their credit expand by only Rs 10,335 crore, or at a 4-yr CAGR of 0.69 per cent during that period.
By comparison, in the previous 4-year period from April 2012 to March 2016, while credit outstanding to the industry expanded by Rs 7.9 lakh crore at a CAGR of 8.9 per cent, that to the micro and small industries expanded by Rs 1.34 lakh crore or at an annual growth rate of 11.9 per cent.
However, the government expects credit disbursement to pick up in coming months as sanctioned loans come up for disbursal. “Loans worth over Rs 6.68 lakh crore were sanctioned by PSBs during March 1 – May 19 for 59.79 lakh accounts from MSME, Retail, Agriculture & Corporate sectors. A steady increase in credit availability for each of these vital sectors,” Finance Minister Nirmala Sitharaman had said on her official Twitter account last Friday.
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“Public Sector Banks sanctioned over Rs 1.07 lakh crore as emergency credit lines & working capital enhancements in the period March 20 to May 19, with Rs 25,527 crore of this amount already being availed by customers,” she had tweeted.
A senior Finance Ministry official said the Centre has been monitoring credit deployment data almost on a daily basis and expects a pick up soon. “The loan sanctions are there in place. Banks are ready to lend. Industries and borrowers were awaiting the lockdown to be lifted to take disbursement. Credit will pick up going forward as lockdown eases gradually and banks cater to the pent up credit demand,” the official said.
MSMEs are also expected to avail the credit facility as banks will be more than willing to lend loans that are now backed by 100 per cent government credit guarantee against loan losses, the official said, adding that this would boost credit deployment by Rs 3 lakh crore.
The decline in demand for credit by the industry, however, coincides with the decline in the demand in the economy and falling capacity utilisations. The RBI’s Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for the October-December 2019 quarter shows that the capacity utilisation declined to at least 12-year low of 68.6 in the quarter ended December 2019.
Experts say that the credit demand for the industry is set to go down further, following the collapse of demand amidst lockdown and banks set to practice more caution as concerns rise over spike in non-performing assets.
This is not the first time the Centre has pushed MSME loans. Over the last five years, the government has announced various schemes to provide credit to MSMEs.
While in April 2015, the Prime Minister announced Pradhan Mantri MUDRA Yojana (PMMY) to provide MUDRA loans of upto Rs 10 lakh, to income generating micro enterprises engaged in manufacturing, trading and services sectors, in November 2018, the Centre launched a 59-minute online loan scheme to boost fund flow to micro, small & medium enterprises (MSMEs). Within the scheme, small firms could get in-principle approval for loans of up to Rs 1 crore in 59 minutes. The limit for the loan was later increased to Rs 5 crore.
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