The decline in lending to micro, small and medium enterprises (MSME) is nothing new. Earlier in the year, the Finance Minister Piyush Goyal had urged state-run banks to step up lending to MSME, agriculture and housing sectors.
However, the latest quarterly report by the TransUnion CIBIL-SIDBI MSME Pulse highlights that the market share of public sector banks (PSBs) in MSME lending (both entities and individual segment) has reduced significantly from 58 per cent in December 2013 to 39 per cent in December 2018. This decline is attributed to central bank imposed lending restrictions on several banks that were saddled with bad debt. The report notes that PSBs continue to be the single largest lender to MSMEs.
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“We would expect that the PSBs would be able to claw back some of the share losses as more PSBs come out of the PCA framework. Their market share growth will also be aided by the continued funding constraints being experienced by the NBFC segment,” the report said.
It has also been highlighted that aggregate lending to MSMEs has risen by a compounded annual growth rate of 19.3 per cent over the last five years.
TransUnion CIBIL managing director Satish Pillai said they have noted significant acceleration in lending in the past couple of years, but growth of this magnitude needs to be monitored as rapid acceleration in debt build-up may indicate prospective stress in the system.
Pillai said “While lenders should monitor their portfolios constantly for loan stacking, leverage and debt build-up, the regulators must keep systemic risks in check.”
In February, industry lobby Assocham and Ashvin Parekh Advisory Services in a joint report said small and medium units together have the potential of taking US$70 billion in formal credit from banks. It said MSMEs form an important component of the economy and contribute significantly to GDP, exports, industrial output and employment generation. It also described the sector as underserved with only 40 to 70 per cent of financial requirements being met by banks.
“MSMEs account for over US$55 billion of lending currently; there is still a huge gap that can be addressed by financial institutions in the near term”, said report.
The TransUnion CIBIL report says relaxation on the use of trade credit data from regulated bill discounting platform TReDS for credit scoring could help improve underwriting standards for banks, while also helping MSME businesses and individuals get better-priced loans.