Lending to micro, small and medium enterprises (MSME) — both entities and individuals — has expanded rapidly over the last five years with the total balance outstanding increasing at a compounded annual growth rate (CAGR) of 19.3 per cent.
According to a TransUnion CIBIL-SIDBI report, commercial credit growth has continued to rise at 14.4 per cent year-on-year (y-o-y) in the quarter ended December 2018.
The total on-balance sheet credit exposure in India stood at Rs 111.1 lakh crore as of December 2018, of which MSME credit accounts for Rs 25.2 lakh crore, including credit to MSME entities and credit to individuals for business purposes.
The non-performing asset (NPA) rates have also shown a gradual reduction with NPAs in the large segment declining from 20 per cent in June 2018 to 19 per cent in December 2018, and the NPA rate for the mid-segment fell from 18 per cent in June 2018 to 16.5 per cent in December 2018, the report said.
Mohammad Mustafa, Chairman and Managing Director, Small Industries Development Bank of India (SIDBI), said: “MSME credit growth acceleration along with a decline in NPAs is a very promising indicator of the prospective development in the segment and thereby economic growth. It also indicates the growth in new-to-credit MSME borrowers, implying that MSMEs are increasingly seeking access to finance from the credit sector. These trends bode well for the ‘ease of doing business’ in India as more and more MSMEs seek credit from the regulated market and this also helps foster financial inclusion.”
The report said there has been landmark improvement in lending intensity observed on the MSME credit. It added that over the last five years, aggregate MSME lending as a proportion of the GDP has risen by around 400 basis points (bps) to reach 13.6 per cent in December 2018 from 9.6 per cent in Decembder 2013. The rapid increase in MSME lending intensity has been driven by a 130 bps and 260 bps improvement in lending to entities and individuals, respectively.
It is noteworthy that MSME lending – as measured by MSME loans outstanding divided by MSME GVA (gross value added) – has risen from 32.2 per cent in December 2013 to 47.6 per cent in December 2018, a landmark increase of 15.4 percentage points (pps). This growth has been driven by an increase of 5.8 pps in lending to entities and 9.7 pps in lending to individuals.
On the growth in lending intensity, Satish Pillai, MD and CEO, TransUnion CIBIL, said: “We have observed significant acceleration in lending in the past couple of years but growth of this magnitude needs to be monitored carefully as rapid acceleration in debt build-up may indicate prospective stress in the system. While lenders should monitor their portfolios constantly for loan stacking, leverage and debt build-up, the regulators must keep systemic risks in check.”
Pillai also pushed for inclusion of alternative data sources in mainstream credit bureau database. “In order to enable system-wide faster and cheaper access to credit by MSMEs, credit information companies must be allowed to access trade credit data from TReDS (Trade Receivables Discounting System) and also enable mandatory reporting by banks of factoring/bill discounting to bureaus. Inclusion of alternative data in mainstream bureau database will not only help drive access to finance for more deserving MSMEs but also enable improved monitoring and surveillance of credit-risk,” he said.