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MSME credit grows by 3.5% QoQ

MSME originations in Private Banks back to pre-COVID levels

* As per the latest MSME Pulse report by TransUnion CIBIL, total MSME credit grew 5.7% YoY (3.5% QoQ) to INR19.1t as of Sep’20, aided by ECLGS disbursements, with better trends witnessed in the Micro segment (8-9% YoY). Inquiry trends in Commercial credit touched pre-COVID levels (13% YoY as of Dec’20) after witnessing a sharp drop in Apr’20.

* PSBs have taken a lead in MSME loan originations since Apr’20 and gained market share. However, recent inquiry trends suggest that Private Banks are inching back to pre-COVID levels, with 22% YoY growth in inquiries v/s 9% growth for PSBs in Dec’20.

* Approval rates have increased with the announcement of the ECLG scheme. The highest beneficiaries of the rise in approval rates are high risks MSME borrowers with a CIBIL rank of 7-10, signaling increasing risk in this segment. However, the NPA ratio declined to 12.1% as of Sep’20 (v/s 13% as of Jun’20) due to the Supreme Court order of not declaring NPAs till further notice.

* As per the latest finance ministry release, total loans sanctioned under ECLGS stand ~INR2.1t, of which INR1.65t has already been disbursed. Among lenders, PSBs disbursed INR612b and Private Banks INR808b.

MSME credit growth recovers; Commercial credit inquiries back to preCOVID levels

Total MSME credit grew 5.7% YoY (3.5% QoQ) to INR19.1t as of Sep’20, aided by ECLGS disbursements, with better trends witnessed in the Micro segment (8-9% YoY). Total Commercial credit grew at 2% YoY to INR71.2t as of Sep’20. Inquiries for Commercial credit had seen a sharp drop during Apr’20 (60% YoY decline). The same has now rebounded sharply, with inquiries surging to 58% YoY as of Jun’20. It is now stable at 13% YoY as of Dec’20 (similar to pre-COVID levels).

Private Banks gain back lost share in MSME lending; inquiry trend improves further

After the announcement of the ECLG scheme in Apr’20, PSBs had taken a lead in MSME loan originations and gained market share from both NBFCs and Private Banks. However, recent inquiry trends suggest that Private Banks are inching back to pre-COVID levels, with 22% YoY growth in inquiries v/s 9% growth for PSBs in Dec’20.

Higher downgrades in the risk profile of borrowers; credit inquiries spike in the high-risk borrower category

The CIBIL MSME rank indicator suggests deterioration in the borrower’s credit profile, with 36% of borrowers, who were in the low risk category (CMR 1-3) as of Sep’19, downgraded to high risk category borrowers during Sep’20 (v/s 24% during the period Sep’18 to Sep’19). A similar increase in downgrades was observed in the medium risk segment (CMR 4-5). Among segments, the highest borrower downgrades have been witnessed in the Micro segment.

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