BFSI Sector update - MSME credit: Gauging the demand, origination and credit behaviour pulse By ICICI Securities
Gauging MSME credit pulse (Source: TransUnion CIBIL and SIDBI) suggests: i) MSME credit demand has gathered pace to 1.6-1.7x of pre-covid levels; ii) MSME disbursements were up 32% in Fy22 and private banks market share has increased across segments; iii) 55% of new originations in FY22 were in CMR4 to CMR6 (medium risk) and 24% in the CMR1 to CMR3 (low risk) category. 60% of new MSMEs loans originated in FY22 had >78% utilisation levels (high utilisation category); iv) Private banks NPA from MSME sector was stable at 5.5% in Q4FY22, it increased for NBFC to 9.6% and for PSU banks to 20.8%; v) trend of missed payments has moderated from pre-covid levels; vi) restructuring was contained on overall pool; and vii) ATS has seen an overall uptick.
* Credit demand was at 1.6x and 1.7x of pre-covid levels for PSU and private banks respectively. NBFCs seem to be on the recovery path.
* MSME disbursements were up 32% in FY22 led by 19%, 33% and 38% YoY growth in micro, small and medium segment respectively. Private banks market share in total disbursements has increased across segments.
* Share of originations from high-risk tier has gone up by 2%, 3% and 4% for PSU, private banks and NBFCs respectively between Q4FY20 and Q4Y22. On approval rates, it has remained largely stable in the past 12 months for private banks, while those for PSU banks and NBFCs have dropped indicating tightening of customer selection criteria.
* 55% of new originations in FY22 are in the medium risk category (CMR4 to CMR6) and 24% of the new originations are in the low risk category (CMR1 to CMR3).
* 60% of new MSMEs loans originated in FY22 had >78% utilisation levels (high utilisation category) compared to 50% in FY’20 for medium-risk category of MSMEs.
* While comparing missed payments of CMR-4 to CMR-6 (medium-risk) borrowers prior to origination, share of lenders with no missed payments has fallen to 39% in FY22 (post-pandemic) from 46% in FY20 (pre-pandemic)
* Impact of pandemic in terms of delinquencies can be gauged from the fact that 7% of MSMEs were with a 30+dpd beyond 12 months in FY22 vs. 3% in FY20 originations.
* 36% of the total borrower who were in CMR 1-3 in Mar’21 downgraded to lower rank buckets by Mar’22 and 9% of the total borrowers who were CMR 4-6 in Mar’21 upgraded to low risk bucket by Mar’22.
* In terms of restructuring, 2.3% of accounts and 1.5% of MSME outstanding portfolio were under restructuring as of FY22-end. 7% of restructured loans reported till Sep’21 has been classified as 90+ as of Mar’22 and standard book as of Mar’22 constitutes 71% (vs. 70% in Sep’21) of the portfolio.
* Given the contained asset quality in private banks and higher disbursements, we believe mid-size regional banks like CUBK, Federal, DCB and large banks like SBI, HDFC Bank, Axis with MSME focus would be beneficiaries from the same.
*Credit inquiry volumes bounce back from covid lows: Demand for MSME loans (measured as number of commercial credit enquiries) has grown. to 1.6 times of pre-pandemic phase owing to recovery in business activity. Credit inquiry volumes have risen 25% in FY22 over and above 29% in FY21. Considering prepandemic phase (with Q4FY20 as base equal to 100), volumes in Q1FY21 (covid first wave) plunged to 64 and bounced to 129 by Q4FY21. Again, volumes contrated to 73 in Q1FY22 (covid second wave) just to bounce back to 161 by Q4FY22.
This reflects that credit inquiry volumes that contracted during covid phases, bounced back strongly as sentiments revived. Credit demand was at 1.6x and 1.7x of pre-COVID levels for PSU and private banks respectively. NBFCs seem to be on the recovery path after second wave in Q1FY22. Launch of ECLGS scheme, enriched credit data availability and adoption for digital lending has enabled sustained increase in credit demand for MSMEs.
* MSME disbursements almost doubled from pre-covid levels in eight quarters: Compared to pre-covid phase (Q4FY20), MSMEs disbursements for all three segments namely micro, small and medium have almost doubled by Q4FY22. MSME disbursements grew 32% to Rs10.6trn in FY22 led by 19% growth for micro, 33% for small and 38% for medium segment.
Disbursements by PSU and private banks have increased by 5% and 14% YoY respectively while it has declined by 16% YoY for NBFCs in Q4FY22. Private Banks have gained market share in disbursements across segments. Overall, MSME loan book stood at Rs 23.1trn, up 6% in FY22 over and above 8% in FY21. This includes Rs 9.4trn (up 13%) towards private banks, Rs9.0trn towards PSU (up 6%) and Rs 2.7trn (up 7%) towards NBFCs. Of the total MSME borrower base, 88% belong to micro segment, 10% towards small segment and rest 2% towards medium segment.
* Originations trend has been different across micro, small and medium enterprises: Share of origination from high risk tier (CMR 7-10) has increased to 19% in Q4FY22 vs. 14% in Q4FY20 while it has fallen to 62% in Q4FY22 vs. 66% in Q4FY20 for micro enterprises. In terms of lender category, risk appetite has increased across lender categories. Share of originations from high-risk category tier has gone up by 200bp, 300bp and 400bp for PSU, private and NBFCs respectively between Q4FY20 to Q4FY22.
55% (55% in FY20) of new originations in FY22 are in the medium risk category (CMR4 to CMR6) and 24% (27% in FY20) of the new originations are in the low risk category (CMR1 to CMR3).
* Approval rates stable for private players: Approval rates in the medium risk segment has been largely stable over the past 12 months for private banks. However, approval rates have fallen for PSU banks and NBFCs which suggest that they would have tightened customer selection criteria.
* Utilisation levels have inched up considerably post pandemic: 60% of new MSMEs loans originated in FY22 had >78% utilisation levels (high utilisation category) compared to 50% in FY’20 for medium-risk category of MSMEs. There was also a spike in utilisation levels in Q1FY22 (during covid wave 2 period).
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