Findings from the latest edition of the SIDBI – TransUnion CIBIL MSME Pulse Report indicate that in FY 2021, loans worth ₹9.5 lakh crores were disbursed to MSMEs. This amount is much higher than the preceding year- FY 2020, when loans amounting to ₹6.8 lakh crores were disbursed. Government interventions like Emergency Credit Line Guarantee Scheme (ECLGS) under the AtmaNirbhar Bharat program was the major factor in driving this significant surge in credit disbursement to MSMEs. The total on-balance sheet commercial lending exposure in India stood at ₹74.36 lakh crores in March ’21, with YOY growth rate of 0.6%. MSME segment’s credit exposure stood at ₹20.21 lakh crores as of March ’21, showing YOY growth rate of 6.6%. This credit growth is observed across all the sub segments of MSME lending.
Credit demand sees a sharp surge post unlocks after both the pandemic waves
Report analysis shows a significant surge in credit demand post unlocks after the 1st and 2nd wave of the pandemic. Followed by the initial drop in commercial credit enquires by 76% during the 1st wave, they recovered rapidly backed by ECLGS intervention and have since sustained close to pre-COVID-19 levels. March ’21 commercial credit enquiries were at 32% over pre-COVID-19 levels; this strong momentum was impacted by the 2nd wave, but June ’21 again showed a sharp recovery to pre-COVID-19 levels.
Speaking on the findings of the MSME Pulse, Shri Sivasubramanian Ramann, Chairman and Managing Director of SIDBI said, “The MSME credit data speaks volumes of success of ECLGS scheme. The scheme has played a major role in 40% Y-o-Y growth in disbursements to the sector, thereby reviving the business sentiments among the MSMEs. The key highlight which signals the revival is credit to new-to-bank (NTB) which has returned back to pre-COVID levels, while credit to existing-to-bank (ETB) remains buoyant. The recent additional relief measures by Government, especially in healthcare, travel and tourism, are expected to improve credit offtake in the MSME sector. Going forward, the lenders need to continuously monitor the health of credit portfolios, while sustaining credit growth to MSMEs.”
Profile of MSME borrowers getting fresh loans has changed in 2021
In order to understand the insights on the key shift in MSME lending, this edition of MSME Pulse covers an analysis1 of borrower profiles of entities getting funded post-COVID wave-1 compared to entities getting funded pre-COVID wave-1. CIBIL Rank (CMR) assigns a rank to the MSME based on its credit history data on a scale of 1-10, CMR 1 being the best possible rank and CMR 10 being the riskiest rank for MSMEs. Post-COVID wave-1, there’s a reduction in new originations on high-risk MSME entities (CMR 8–10). This reduction is offset by an increase in originations in CMR 6–7, implying lenders have reduced risk appetite in the current uncertain environment. On the other hand, the analysis brings forth the fact that finding high ranking MSMEs is harder, which is reflected in the fact analysis done using CreditVision® (CV) algorithm of missed payments. The analysis captures the payment behavior of MSMEs across their outstanding obligations. The analysis reveals that:
- Of the MSME that were given loans in the period of Jan to Mar ’21, 29% had missed more than one payment in last three months
- Of the MSMEs that were given loans during Jan to Mar’ 20, 21% had missed more than 1 payment in the preceding 3 months
This analysis indicates that credit institutions have been open to lending to MSMEs with missed payments but not to MSMEs with absolutely poor CMR (CMR-8 to CMR-10).
“The belief in India’s growth story is reasserted with the significant surge in MSME credit demand post unlocks. This growth story has been supported from the supply side by credit institutions who have astutely implemented government’s pro-growth initiatives like ECLGS and restructuring by using data analytics and solutions from financial intermediaries like TransUnion CIBIL. This commendable resilience and promising prospects of our country’s MSME sector signals strong resurgence potential and stands testimony to the stability and strength of our economy,” said MD & CEO of TransUnion CIBIL, Shri Rajesh Kumar.
Regular portfolio monitoring based on CMR vital for controlling stability
An accelerated increase in credit balances in the recent quarters — especially in the Medium Risk and High Risk segments make the case stronger for heightened portfolio monitoring. CreditVision® (CV) algorithms like, trended utilization in credit balances for revolving credit facilities such as cash credit and overdraft loan are analyzed over a period of 12 months. These algorithms enables further disaggregation of credit bureau data, and when used in conjunction with CMR, provides a sharper risk differentiation.
Split of utilization within the CIBIL MSME Ranks (CMR) indicates the MSME entities in the highest utilization segment (>78% average Utilization) of CMR 4-5 Rank borrower segment have a bad rate of 13%, while the bad rate for same CMR 4-5 segment borrower reduces to 7% for utilization level below 50%. Thus, using the trended utilization algorithm, it’s possible to identify pockets of stress within the good ranks, as well as segment better borrowers amongst medium-risk borrowers.
“Backed by the ECLGS interventions, the MSME segment is well supported to drive business growth and economic resurgence. Banks and credit institutions must now focus on a sustained credit growth and on monitoring the health of their portfolios astutely through CMR and CreditVision ® lens to be able to implement timely interventions needed for sustained growth,” concludes Shri Raj
|MSME Pulse- Edition XII– Highlights
ECLGS and other interventions for the MSME sector have led to higher loan amount disbursed to MSME segment in FY 2021 than earlier years: In FY 2021, the country disbursed loans worth ₹9.5 lakh crore to MSME sector; higher than preceding year of ₹6.8 lakh crore in FY 2020. This sharp jump in MSME lending for FY 2021 was supported by Atmanirbhar Bharat scheme of ECLGS which provided 100% credit guarantee to lenders.
Unlocks in June ‘21 have led to a sharp bounce back in credit demand (measured as credit enquiries) by MSMEs, which was dampened by the 2nd wave after a strong 4th quarter of FY21: After the initial drop in commercial credit enquries by 76% due to the 1st wave, they recovered fast with ECLGS and have since sustained close to pre-COVID levels. March ’21 commercial credit enquiries were 32% over pre-COVID levels; this strong momentum was impacted by 2nd wave, but June ’21 has a sharp recovery back to pre-COVID levels.
MSME credit outstanding has grown by 6.6% YoY in March ’21, with Micro segment growing the fastest at 7.4%: Strong rebound in credit demand, accompanied by equally strong credit supply and ECLGS support, has led to growth in the credit outstanding amount of MSME sector to ₹20.21 lac crores, with a YoY growth rate of 6.6%. Micro segment has grown fastest at 7.4%, followed by Small segment at 6.8% and Medium segment at 5.8%.
Lending to new-to-bank (NTB), MSMEs has recovered back to pre-COVID levels, while lending existing-to-bank (ETB) continues to be bouyant: Credit disbursals to NTB MSMEs had dropped by 90% in April ’20 compared to pre-COVID levels, and has gradually returned back to 5% higher than pre-COVID levels in March ’21. Credit disbursals to ETB MSMEs jumped to 75% over pre-COVID levels in June ’20 due to ECLGS, and since then has sustained pre-COVID levels.
Policy level interventions by government and regulator have reflected in controlling the credit downgrades in MSME till Dec. ’20, with a jump in downgrades for March ’21: MSME credit performance movement, measured through CIBIL MSME Rank (CMR) downgrades, has been broadly in control till Dec. ’20 with policy-level interventions. With the lifting of moratorium and clarification in guidelines for delinquency recognition, the downgrades have jumped in the quarter of March ’21 — leading to a rise in the pool of mid-risk MSMEs.
Risk appetite across lenders is back to pre-pandemic levels: Approval rates have increased across all lenders with the backing of 100% credit guarantee of ECLGS. The originations share by CMR show that share of high-risk segment CMR 7–10 dropped and low-risk segment CMR 1–3 increased in the initial period of pandemic. But now, the originations distribution by CMR is similar to that of the pre-COVID-19 levels.
Lenders are relatively more open to lend to MSMEs which missed payments in last 12 months: Of lending to MSMEs from Jan. ’21 to March ’21, 29% was to borrowers who have missed more than one payment in last three months; the same proportion for Jan. ’20 to March ’20 was at 21%, indicating increasing acceptance of lenders to fund MSMEs with missed payments.
NPA rates for MSME portfolios is stable due to high credit growth: With the strong inflow of credit in the MSME sector, and various support measures from government and regulator, the NPA rates for MSMEs are controlled at 12.5% for March ’21 comapred to 12.6% for March ’20. However, the NPA rates for March ’21 are higher than Dec. ’20 (12%) coupled with credit downgrades.
1For this analysis only working capital and term loan new originations were taken into consideration — all renewals, as well as GECL Loans (Top up Loans under ECLGS), were excluded. Since credit characteristics of borrowers is analyzed, all new to credit originations are excluded from the analysis. Sanctions between Rs.1 Lakh to Rs.1 Cr were considered for this analysis. Time period considered is originations from Jan. ’21 to March ’21 for post-COVID wave 1, and originations from Jan. ’20 to March ’20 for pre-COVID wave 1. The time period of Jan.–March ’21 was chosen because this is when normalcy was restored post the various stages of lockdown-unlock and when regulatory interventions also were reduced.