Covid, lockdown hit MSMEs hardest, their unhealthy loans spiked Rs 20,000 crore in 2020-21

THE SLOWDOWN within the financial system within the wake of the Covid pandemic within the final two years appears to have hit the micro, small and medium enterprises (MSMEs) probably the most regardless of a number of mortgage restructuring schemes and packages introduced by the Reserve Bank of India (RBI) and the federal government.

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Gross non-performing property (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 stated in response to a Right to Information (RTI) utility by The Indian Express.

According to the RBI, unhealthy loans of MSMEs now account for 9.6 per cent of gross advances of Rs 17.33 lakh crore as in opposition to 8.2 per cent in September 2020. In truth, MSME unhealthy loans had declined from Rs 1,47,260 crore (8.8 per cent of advances) in September 2019, solely to choose up once more in 2021.

ExplainedNo reprieve for small items

Public sector banks accounted for the majority 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, adopted 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 mortgage turns right into a non-performing asset when principal or curiosity turns into overdue after 90 days.

The rise in unhealthy loans occurred even after the RBI introduced 4 mortgage restructuring schemes for MSMEs in January 2019, February 2020, August 2020 and May 2021. Loans of as many as 24.51 lakh MSME accounts price Rs 1,16,332 crore had been restructured below these schemes. Under the May 2021 round issued by the RBI, loans for Rs 51,467 crore had been restructured, in line with the RBI’s ‘Trend and progress of banking’ report.

According to the RBI definition, a micro unit’s funding shouldn’t exceed Rs one crore and turnover Rs 5 crore, small items’ funding shouldn’t exceed Rs 10 crore and turnover Rs 50 crore and a medium enterprise’s funding shouldn’t be greater than Rs 50 crore and turnover Rs 250 crore.

The MSME sector was among the many most pandemic stricken sectors. Thousands of MSMEs both shut down or grew to become sick after the federal government introduced a nationwide strict lockdown in March 2020 within the wake of the Covid pandemic. To revive exercise, the RBI and the federal government launched a number of measures together with the Emergency Credit Line Guarantee Scheme (ECLGS) which offered Rs 3 lakh crore of unsecured loans to MSMEs and enterprise. The RBI additionally prolonged the scheme of one-time restructuring of loans to MSMEs with out an asset classification downgrade and permitted financial institution lending to NBFCs (apart from MFIs) for on-lending to agriculture, MSMEs and housing to be labeled as precedence sector lending (PSL).

Banking sources stated the restructuring schemes and packages didn’t profit 1000’s of items which had been already in default. This is as a result of to be eligible below the ECLGS scheme, borrower accounts had been to be lower than or equal to 60 days due as on February 29, 2020.

According to the RBI’s Financial Stability Report, credit score to the MSME phase slowed down (y-o-y) by the tip of September 2021 vis-a-vis March 2021. The decline was notably noticeable within the sub Rs 25 crore ticket measurement throughout main financial institution teams.

Under the ECLGS, loans amounting to Rs 2.82 lakh crore had been sanctioned until November 12, 2021, of which Rs 2.28 lakh crore was disbursed (Rs 1.94 lakh crore by business banks, forming 20.6 per cent of the incremental credit score throughout the interval), it stated.