MSME credit grew by 5.7% on yearly basis to Rs 19.1 trillion as of September 2020 which was aided by ECLGS transaction with better trends witnessed in the micro loan segment which saw a growth of 8-9%. Further, the total commercial credit grew at 2% on a yearly basis to Rs 71 trillion as of September 2020.
The inquiry trends show that commercial credit touched pre-covid levels after witnessing a sharp drop in April 2020.
PSBs took a lead in MSME loan origination as compared to NBFCs and Private Banks. However, recent inquiry trends suggest that private banks are taking slow and inching back to pre-COVID levels with 22% growth in inquiries vs 9% growth for PSBs in December 2020.
Approval rates had increased post the announcement of the ECLG scheme and highest beneficiaries of the rise in approval rates are high risk MSME borrowers who had a CIBIL rank of 7-10 signalling increasing risk in this segment.
The total loan sanctioned under ECLGS scheme stood at Rs 2.1 trillion of which Rs 1.65 trillion has already been disbursed. Among banks, public lenders disbursed Rs 61,000 crore and private banks around Rs 80,000 crore.
CIBIL’s MSME rank indicator suggests deterioration in the borrower’s credit profile with 36% borrowers who were in the low risk category (CMR 1-3) as of September 2020 were downgraded to high risk category borrowers during September 2020.
A similar increase in downgrad has been observed in the medium risk segment with (CMR 4-5). Among segments, the highest borrower downgrades have been witnessed in the micro segment.
However, the NPA ratio in MSME segment declined to 12.1% as of September 2020 due to the Supreme Court order of not declaring NPAs till further notice.
Motilal Oswal Financial Services in a note said, “Large Private Banks are well placed to accelerate market share gains given their strong capital position, robust liability franchise, and high provisioning coverage on stressed assets. During 9MFY21, ~57% of incremental loan growth was driven by SBI, HDFC Bank, and ICICI Bank, with most large Private Banks reporting 3-7% QoQ growth supported by ECLGS disbursements.”
It added, “We expect the growth momentum to remain strong as we project FY22E/FY23E systemic loan growth at 11%/13%, with the same for Private Banks at 15%/19%. We prefer large Banks.”