Rising MSME bad debts are not alarming: RBI


The Reserve Bank on Friday allayed lender fears over rising delinquency levels among small business loan borrowers, who are hit hard by the second wave of Covid-19, saying the numbers are not yet alarming .

The government and the central bank are working to support MSMEs during the pandemic through credit measures such as the Emergency Credit Lines Guarantee Program (ESLGS) which allowed them to increase to Rs 9.5 lakh crore in fiscal year 21, affected by the pandemic, from Rs 6.8 lakh crore in FY20, while the quality of assets deteriorated to 12.6% in March 2021 from 12% in December 2020.

Speaking virtually to reporters at the usual post-policy press conference on Friday, when the central bank left the policy rate unchanged at 4%, RBI Deputy Governor Mukesh Jain said he didn’t There was no crisis on that front, as stress levels among small business borrowers are not very high, although slippages and loan restructurings have been increasing in recent times.

“The situation is not very bad because many accounts are being restructured as part of the Covid version 2 package announced in May, which allowed borrowers in crisis to opt for up to two years of moratorium”, a- he declared.

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“Yes, there is a visible increase in slippages among MSME borrowers, but the amount of slippages has not reached an alarming level,” Jain said. “We are constantly monitoring all regulated entities, especially banks and large NBFCs to verify the quality of their assets. Our stress tests also prove that there is nothing to be alarmed about at the moment,” a- he added.

A July 28, 2021 report from Sidbi-Cibil said NPA levels among MSME borrowers jumped to 12.6% in the March 2021 quarter, from 12% in December 2020, while loans to them granted increased to Rs 9.5 lakh crore in FY21 from Rs 6.8 lakh crore in FY20.

“After the first wave, the RBI had asked all consistently important banks and NBFCs to pass stress tests, and their pre-Covid and March 2021 figures show that there is an overall improvement across all parameters, that be it the capital adequacy ratio, NPAs / slips or the provision coverage ratio – all have improved and are better than pre-pandemic levels, ”Jain said, adding that there was also an improvement in their profitability figures.

It can be noted that since the pandemic hit the country in March last year, the government and the central bank have encouraged lenders to offer easy credit to small businesses, numbering over 6.3 crore, because they are the backbone of the economy in terms of employment and contribution to GDP. But most of the support is in the form of credit, part of which has been guaranteed by the government in the event of default.

Last week, Union MSME Minister Narayan Rane told Lok Sabha that around 1.09 crore of MSME borrowers had received the pledged guarantee of Rs 1.65 crore under the emergency line of credit guarantee until July 2, 2022, which was announced as part of the first Covid package in May 2020 to help them meet their operational liabilities and resume operations. But, the number shows that only less than a sixth of eligible MSME borrowers could benefit from the facility, as there were over 6.3 million MSMEs in the country as of May 2021.

Numerous reports indicate that many of them have lowered the shutters due to the pandemic.

The overall ceiling of the eligible ECLGS guarantee was raised from Rs 3 lakh crore to Rs 4.5 lakh crore at the end of June 2021.

The government, for its part, had paid contributions of Rs 55,863.30 crore to MSMEs between May 2020 and July 2021.

The Cibil-Sidbi report said that the demand for credit from the MSME segment has increased, thanks to interventions such as the Emergency Line of Credit Guarantee Program, specifying that loans worth 9.5 lakh crore were paid to MSMEs in pandemic-affected FY21 compared to Rs 6.8 lakh crore in FY20. The credit jump led to the overall level of NPAs being stable from 12.5% ​​in FY20.

The exposure to commercial loans stood at Rs 74.36 lakh crore in March 2021, with a growth rate of 0.6%, while the credit exposure of the MSME segment increased by 6.6% to Rs 20.21 lakh crore. Credit disbursements to new MSME banking clients had fallen 90% in April 2020 from pre-pandemic levels and gradually recovered to be 5% higher than pre-pandemic levels in March 2021 .

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