THE SLOWDOWN in the economy in the wake of the Covid pandemic in the last two years seems to have hit the micro, small and medium enterprises (MSMEs) the most despite a host of loan restructuring schemes and packages announced by the Reserve Bank of India (RBI) and the government.
Gross non-performing assets (NPAs) of MSMEs, or loans defaulted by these enterprises, rose by Rs 20,000 crore to Rs 1,65,732 crore as of September 2021 from Rs 1,45,673 crore in September 2020, the RBI said in response to a Right to Information (RTI) application by The Indian Express.
According to the RBI, bad loans of MSMEs now account for 9.6 per cent of gross advances of Rs 17.33 lakh crore as against 8.2 per cent in September 2020. In fact, MSME bad loans had declined from Rs 1,47,260 crore (8.8 per cent of advances) in September 2019, only to pick up again in 2021.
No reprieve for small units
Public sector banks accounted for the bulk of MSME NPAs at Rs 1,37,087 crore, the RBI says. Among state-owned banks, PNB had MSME NPAs of Rs 25,893 crore as of September 2021, followed by State Bank of India Rs 24,394 crore, Union Bank Rs 22,297 crore and Canara Bank Rs 15,299 crore, the RBI says.
A loan turns into a non-performing asset when principal or interest becomes overdue after 90 days.
The rise in bad loans happened even after the RBI announced four loan restructuring schemes for MSMEs in January 2019, February 2020, August 2020 and May 2021. Loans of as many as 24.51 lakh MSME accounts worth Rs 1,16,332 crore were restructured under these schemes. Under the May 2021 circular issued by the RBI, loans for Rs 51,467 crore were restructured, according to the RBI’s ‘Trend and progress of banking’ report.
According to the RBI definition, a micro unit’s investment should not exceed Rs one crore and turnover Rs 5 crore, small units’ investment should not exceed Rs 10 crore and turnover Rs 50 crore and a medium enterprise’s investment should not be more than Rs 50 crore and turnover Rs 250 crore.
The MSME sector was among the most pandemic afflicted sectors. Thousands of MSMEs either shut down or became sick after the government announced a nationwide strict lockdown in March 2020 in the wake of the Covid pandemic. To revive activity, the RBI and the government introduced several measures including the Emergency Credit Line Guarantee Scheme (ECLGS) which provided Rs 3 lakh crore of unsecured loans to MSMEs and business. The RBI also extended the scheme of one-time restructuring of loans to MSMEs without an asset classification downgrade and permitted bank lending to NBFCs (other than MFIs) for on-lending to agriculture, MSMEs and housing to be classified as priority sector lending (PSL).
Banking sources said the restructuring schemes and packages didn’t benefit thousands of units which were already in default. This is because to be eligible under the ECLGS scheme, borrower accounts were to be less than or equal to 60 days due as on February 29, 2020.
According to the RBI’s Financial Stability Report, credit to the MSME segment slowed down (y-o-y) by the end of September 2021 vis-a-vis March 2021. The decline was particularly noticeable in the sub Rs 25 crore ticket size across major bank groups.
Under the ECLGS, loans amounting to Rs 2.82 lakh crore were sanctioned till November 12, 2021, of which Rs 2.28 lakh crore was disbursed (Rs 1.94 lakh crore by commercial banks, forming 20.6 per cent of the incremental credit during the period), it said.