Public sector banks report sharp declines in loans to MSMEs in the first quarter

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A visible sign of tension in the MSME portfolio, public sector banks reported a sharp increase in further slippages in their small business loan portfolio during the first quarter of FY22. The second wave of the pandemic appears to have had an additional impact on small businesses, drastically reducing their ability to repay.

The country’s largest lender, State Bank of India, posted its highest quarterly net profit on record at 6,504 crore in the first quarter of fiscal 22. However, new slippages from the public lender rose more than four times times to reach 15,666 crore yen in the first quarter of the current fiscal year, compared to 3,637 crore yen in the last year quarter. Over 40 percent of SBI’s total slippages in the first quarter or 6,416 crore came from the MSME sector.

Likewise, other large PSU banks such as Bank of Baroda, Indian Bank, Punjab National Bank and Union Bank of India have all seen a substantial increase in further slippages in the MSME sector.

Almost 59% of Indian Bank’s new slippage in the first quarter of fiscal year 22 to 4,204 crore came from the MSME sector while in the case of Canara Bank, the MSME sector accounted for 58% of the total slippage of 4,253 ₹ crore during said period.

RBI’s caution

In its July Financial Stability Report (FSR), the Reserve Bank of India warned that banks were facing the prospect of an increase in NPLs, especially in their portfolios of small and medium enterprises (SMEs) and Retail.

“Within the national financial system, bank credit flows and corporate capital spending remain modest. As banks’ exposures to larger, higher-rated borrowers decline, there are emerging signs of strain in the micro, small and medium-sized enterprises (MSMEs) and retail segments, ”the report notes.

Year over year, the overall slippages of all public sector banks collectively increased more than fourfold to 53,914 crore in the first quarter of FY22, from 13,188 crore in the first quarter of l FY 21. SBI, PNB, Union Bank of India, Bank of Baroda and Canara Bank are among the top five banks with the highest new slips, collectively accounting for 75 percent of total slips in the first. trimester.

In its attempt to ease tensions in the MSME portfolios of banks and NBFCs, the RBI has introduced various restructuring programs. Since 2019, the RBI has authorized the restructuring of temporarily impaired MSME loans (up to ₹ 25 crore in size) under three programs. As a result, public sector banks collectively restructured loans worth 56,866 crore as part of the January 2019, February 2020 and August 2020 restructuring plan.

“Despite the restructuring, stress in the MSMEs portfolio of PSBs remains high,” the central bank said in its FSR.

ECGLS programs

The current surge in further slippages comes against the backdrop of a significant increase in credit disbursements to the MSME sector in 2020-2021 through the Emergency Line of Credit Guarantee Program (ECLGS). Launched in May 2020, ECGLS aims to provide unsecured and government guaranteed loans to MSMEs and other entities affected by the pandemic. The government has since extended the scope of the program from time to time through ECGLS 2.0, 3.0 and 4.0 to cover more sectors of the economy.

According to the SIDBI-TransUnion Cibil quarterly report “MSME Pulse”, a strong rebound in credit demand, accompanied by an equally strong supply of credit and support from ECLGS, led to growth in outstanding loans. MSME sector credit at 20.21 lakh crore, with a YoY 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 said.


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