Even though loan growth languishes around the 6% level, delinquency figures are starting to confirm bankers’ worst fears about the state of MSMEs. Bad debts under the Pradhan Mantri Mudra Yojana (PMMY) had increased to nearly 12% as of March 31, 2021, the Micro-Unit Development and Refinancing Agency (Mudra) said in response to a query about the right to information (RTI) filed by this newspaper. In FY21, Rs 3.12 lakh crore was disbursed on just over 5 crore of PMMY loans. So far in the current year, just over 2 crore in loans has been granted, for a total of Rs 1.14 lakh crore.
Given that the State Bank of India (SBI) has confirmed that a fifth of its exposure to Mudra has become non-performing, it is likely that the second wave of Covid-19 in April-May would have made the situation worse, especially in the micro-loans segment. . The pandemic has hit small businesses hard, and while the government has done well to support small businesses by issuing guarantees under the Mudra program and, more recently, through the Emergency Lines of Credit Guarantee Program ( ECLGS), given the extent and scale of Covid’s devastation. , this fallback option may not be sufficient. The ECLGS has been extended until March 2022, or until a total of Rs 4.5 lakh crore has been loaned. Until early July, an amount of Rs 2.14 lakh crore had been disbursed against an expense of Rs 3 lakh crore.
Banks’ exposure to the micro and small business segment, at Rs 3.9 lakh crore on August 27, 2021, was up 10% from a year ago. The outstanding bank loans to the medium-sized business segment were only Rs 1.7 lakh crore on the same date. Bankers confirm that without the ELCGS exposure to MSMEs would have been lower. While the government funds ELGCS to some extent, banks are wary of borrowers who become over-indebted. It is ironic that today’s lenders are so cautious of low cost loans to genuine borrowers when not so long ago they were disbursing thousands of crore loans at large companies, clearly without proper valuation, because much of it did not come back. Defaulting companies have left lenders with NPAs running up against several lakh-crores of rupees. Yet today, when most banks are much better capitalized, they are reluctant to lend to small businesses. Not only has the government injected large sums of capital into public lenders, but the provision coverage ratio (PCR) in most banks is more than comfortable.
Crisil recently said he expects distressed loans (NPAs and restructured accounts) in the MSME portfolio to reach as high as 18% by March 2022. It could be possible. In addition, an APN in one account also has an impact on customer loans in other categories. Still, even if they have to downgrade all a customer’s loans, if an account goes bad, banks should continue to support relatively stronger businesses. Any general aversion to lending to small units at this point would hurt the nascent recovery. As we know, the informal economy is much larger than the formal sector and employs many more people; he needs support.
If the third wave of the pandemic escapes us, many struggling units can be revived. Banks should use the arrangements they have created to help small units. At the end of the day, banks are supposed to take calculated risks, not turn their backs on an asset that doesn’t get an AAA rating.