During the first trimester of FY22, public sector banks have reported a substantial increase in further slippages in their small business loan portfolios, indicating a tangible symptom of stress in the MSME wallet. The second wave of the pandemic appears to have had a greater impact on small businesses, severely limiting their ability to repay their debts.
National Bank of India, the country’s largest lender, reported its highest quarterly net profit on record of Rs 6,504 crore in Q1FY22. The public institution’s new slippages, on the other hand, have more than quadrupled to 15,666 crore in the first quarter of this fiscal year, compared to 3,637 crore in the previous quarter. The MSME sector accounted for nearly 40% of SBI’s total slippages in the first quarter (6,416 crore).
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Other large public sector banks, such as Baroda Bank, Indian Bank, National Bank of Punjab, and Union Bank of India, have also seen a significant increase in further slippages in the MSME sector. The MSME sector accounted for over 59% of the new Indian Bank slippage in the first quarter of FY22 (4,204 crore), while the MSME sector accounted for 58% of Canara Bank’s total slippage (4,253 crore) during the same period.
Reserve Bank of India warned in its July Financial Stability Report (FSR) that banks are facing an increase in NPLs, especially in their small and medium-sized enterprise (SME) and retail portfolios.
“Within the national financial system, bank credit flows and corporate capital spending remain modest. As banks’ exposures to larger, higher-rated borrowers decline, signs of stress are beginning to appear in the market. micro, small and medium enterprises (MSME) and retail segments, ”the report notes.
Overall slippages for all public sector banks increased more than four times year-on-year to 53,914 crore in Q1FY22 from 13,188 crore in Q1FY21. SBI, PNB, Union Bank of India, Bank of Baroda and Canara Bank are among the top five banks that recorded the latest slippages in the first quarter, accounting for 75% of overall slippages.
The RBI has introduced various restructuring plans with the aim of relieving tensions in the MSME portfolios of banks and NBFCs. The RBI has authorized the restructuring of questionable temporary loans to MSMEs (up to 25 crore) under three programs since 2019. As a result, under the restructuring plan of January 2019, February 2020 and August 2020, the banks the public sector restructured loans totaling 56,866 crore.
The recent wave of further slippages coincides with a dramatic increase in loan disbursements to the MSME sector in 2020-2021, which will be assisted by the Emergency Credit Line Guarantee Program (ECLGS). The ECGLS, which will be launched in May 2020, aims to provide MSMEs and other entities affected by the epidemic with unsecured and government guaranteed loans. The government has now broadened the scope of the program to incorporate other sectors of the economy with ECLGS 2.0, 3.0 and 4.0.
According to the SIDBI-TransUnion Cibil quarterly report “MSME Pulse”, a strong rebound in demand for credit, accompanied by an equally strong supply of credit and support from the ECLGS, has led to an increase in outstanding credit. of MSME sector at Rs 20.21 lakh crore, representing an annual growth rate of 6.6 percent.
“In FY21, the country disbursed loans worth 9.5 lakh crore to the MSME sector; greater than ₹ 6.8-lakh crore in FY20. This sharp increase in loans to MSMEs was supported by ECLGS ‘Atmanirbhar Bharat program which provided 100% credit guarantee to lenders, ”the report says.
Source: The Hindu Business Line
(Information source: The Hindu Business line)