The total on-balance sheet commercial lending exposure in India stood at Rs 74.36 lakh crore in March’21, with YOY growth rate of 0.6%. MSME segment’s credit exposure stood at Rs 20.21 lakh crore as of March’21, showing YOY growth rate of 6.6%. This credit growth is observed across all the sub segments of MSME lending.
Credit demand sees a sharp surge post unlocks
The report shows a significant surge in credit demand post unlocks after the first and second wave of the pandemic. Followed by the initial drop in commercial credit enquires by 76% during the first wave, they recovered backed by ECLGS intervention and have since sustained close to pre-COVID levels. In March this year the commercial credit enquiries were at 32% over pre-COVID levels; this strong momentum was impacted by the second wave, but in June this year it again showed a sharp recovery to pre-COVID levels.
In a statement, Sivasubramanian Ramann, Chairman and Managing Director of SIDBI said, “The MSME credit data speaks about the success of ECLGS scheme. The scheme has played a major role in 40% Y-o-Y growth in disbursements to the sector, thereby reviving the business sentiments among the MSMEs. The key highlight which signals the revival is credit to new-to-bank (NTB) which has returned to pre-COVID levels, while credit to existing-to-bank (ETB) remains buoyant. The recent additional relief measures by the government, especially in healthcare, travel and tourism, are expected to improve credit offtake in the MSME sector. Going forward, the lenders need to continuously monitor the health of credit portfolios, while sustaining credit growth to MSMEs.”
Profile of MSME borrowers getting fresh loans has changed in 2021
In order to understand the insights on the key shift in MSME lending, the report covers an analysis of borrower, profiles of entities getting funded post the first wave compared to entities getting funded pre-COVID. CIBIL Rank (CMR) assigns a rank to the MSME based on its credit history data on a scale of 1-10, CMR 1 being the best possible rank and CMR 10 being the riskiest rank for MSMEs. After the first wave of COVID, there was a reduction in new originations on high-risk MSME entities (CMR 8–10). This reduction is offset by an increase in originations in CMR 6–7, implying that lenders have a reduced risk appetite in the current environment. On the other hand, the analysis brings forth the fact that finding high ranking MSMEs is harder, which is reflected in the analysis done using CreditVision(CV) algorithm of missed payments. The analysis reveals:
- Of the MSME that were given loans in the period of Jan to Mar’21, 29% had missed more than one payment in last three months
- Of the MSMEs that were given loans during Jan to Mar’20, 21% had missed more than 1 payment in the preceding 3 months
- This analysis indicates that credit institutions have been open to lending to MSMEs with missed payments but not to MSMEs with absolutely poor CMR (CMR-8 to CMR-10).
“The belief in India’s growth story is reasserted with the surge in MSME credit demand post unlocks. This growth story has been supported from the supply side by credit institutions who have implemented government’s pro-growth initiatives like ECLGS and restructuring by using data analytics and solutions from financial intermediaries like TransUnion CIBIL,” said MD & CEO of TransUnion CIBIL, Shri Rajesh Kumar, in a statement.
Regular portfolio monitoring based on CMR vital for controlling stability
An accelerated increase in credit balances in the recent quarters — especially in the medium and high risk segments make the case stronger for heightened portfolio monitoring. CV algorithms like, trended utilization in credit balances for revolving credit facilities such as cash credit and overdraft loan are analyzed over a period of 12 months. These algorithms enables further disaggregation of credit bureau data, and when used in conjunction with CMR, provides a sharper risk differentiation.
Split of utilization within the CIBIL MSME Ranks (CMR) indicates the MSME entities in the highest utilization segment (>78% average Utilization) of CMR 4-5 Rank borrower segment have a bad rate of 13%, while the bad rate for same CMR 4-5 segment borrower reduces to 7% for utilization level below 50%. Thus, using the trended utilization algorithm, it’s possible to identify pockets of stress within the good ranks, as well as segment better borrowers amongst medium-risk borrowers.
“Backed by the ECLGS interventions, the MSME segment is well supported to drive business growth and economic resurgence. Banks and credit institutions must now focus on a sustained credit growth and on monitoring the health of their portfolios astutely through CMR and CV lens to be able to implement timely interventions needed for sustained growth,” concluded Kumar, in a statement.