Credit flow to MSME sector is slower compared to the increasing demand as lenders follow a cautious approach on commercial lending. Credit demand grew at 33 per cent whereas supply grew at only 11 per cent in Q4 FY23, revealed a latest joint report by TransUnion CIBIL and SIDBI.
In Q4 FY23, total amount on new MSME credit originations was Rs 2.41 lakh crores. Compared to Q4 FY20, commercial loans disbursement saw 1.7X growth as of March 2023.
In Q4 FY23, demand for credit at PSBs and private sector banks grew 1.3 times of the previous year volumes. With credit demand at NBFCs growing 1.5 times over the previous year, they are rapidly emerging as competitive players in the commercial credit space, the report highlighted.
Improvement in business activity, availability of enriched credit data and rapid implementation of digital lending are the crucial factors driving growth of MSME credit demand.
With ‘micro’ enterprises gaining prominence, commercial loan originations show similar trends as those observed in credit demand. Insights show 23 per cent YoY growth in borrowers who availed sub Rs 1 Crore loans while borrowers seeking greater than Rs 1 Crore grew at a lesser rate. Thus showing that ‘micro’ loans (less than 1 Crore) are driving the credit growth.
Private banks have been at the forefront of lending to the MSME sector with the highest share in commercial loans origination. However, NBFCs are rapidly grabbing share with considerable increase in Q4 FY23, albeit in ‘small’ segments, said the report.
While there has been a marginal decline in commercial loan disbursements by private and public sector banks, NBFCs exhibit an encouraging trajectory, indicating a positive trend in their lending activities.
Commercial Credit Growth continues to remain buoyant
The total commercial credit exposure stands at 27.7 lakh crores as of Q4 FY23. However, a portion of this book-approximately 9 per cent amounting to Rs 2.4 lakh crores, consists of legacy accounts with DPD (Days Past Due) beyond 720 days or accounts reported as loss/doubtful, revealed the report.
In terms of credit outstanding balance, ‘micro’ borrowers (availing less than Rs 1 crore loan) contribute approximately 26 per cent, accounting for a significant Rs 6.5 lakh crores. On the other hand, ‘small’ borrowers (availing loans between Rs 1 crore to Rs 10 crores) and ’medium’ borrowers (availing loans between Rs 10 crores to Rs 50 crores collectively constitute around 74 per cent of the commercial outstanding balance, equivalent to a remarkable Rs 18.9 lakh crores.
Balances for ‘micro’, ‘small’ and ‘medium’ segment continue to grow at 18 per cent, 17 per cent and 15 per cent YoY respectively in the commercial lending space.
With rising demand, improved credit performance and promising economic growth prospects, time is conducive for lenders to expand their MSME credit portfolios. India has approximately 630 lakh MSME corporates of which only 250 lakh have ever availed credit from formal sources. While the sector continues to grow at a projected compound annual growth rate (CAGR) of 2.5 per cent, the approximate number of MSME corporate entities is expected to touch 750 lakh by FY 23, the report further stated.
Of these, around 500 lakh are expected to be NTC MSME entities. Lenders can tap into this vast segment by identifying deserving NTC MSMEs, connecting with them and customising credit products for their requirements.
