Credit to MSMEs rose by 14%, bad loans rose by 27%

Ahmedabad: Micro, small and medium enterprises (MSMEs) seem to be reeling from the pressure of bad loans. A recent report by the State Level Banker’s Committee (SLBC) indicates that non-performing assets (NPAs) of MSMEs stood at Rs 6,838 crore in the December quarter of 2017-18, an increase of 27% from Rs 5,374 crore of bad loans in the same period last fiscal.

Total advances by banks was Rs 92,299 crore in the December quarter of 2017-18 compared to Rs 79,816 crore in the third quarter of 2016-17. NPAs in the December quarter of FY 2017-18 accounted for 7.4% of total advances while for the December quarter of FY 2016-17 it was 6.73%.

Vikramaditya Singh Khichi, convener of the SLBC Gujarat, said, “NPAs are usually higher in the MSME sector. Most companies are ancillary units supplying to corporates and when corporates are stressed, MSMEs consequently suffer with payments getting stuck. As a result, they slip into NPAs.”

Khichi also blamed teething troubles and the transition to the goods and services tax (GST) as a reasons for the rise in NPAs of MSMEs. “The transition to GST also caused a short-time disturbance. It is no more a cause of worry for MSMEs, because the RBI announced relief to GST-registered MSMEs in February 2018, which will prevent slippages into bad loans,” said Khichi.

Cash flow strapped MSMEs breathed a sigh of relief in February, as RBI asked banks and non-banking finance companies (NBFCs) to allow GST-registered MSMEs to make payments due between September 1, 2017 and January 31, 2018 a further 180 days from their due date without classifying the loan account as NPAs. Earlier, MSMEs only had a window of 90 or 120 days.

Bankers are also optimistic that the NCLT resolution for insolvency cases of corporates will benefit MSMEs to some extent as there is a chance that halted payments will be released. While total advances have gone up by 16%, NPAs increased by nearly double the rate.

Deposits have remained stagnant, registering marginal growth of less than 1% from Rs 6.31 lakh crore in the December quarter of FY 2016-17 to Rs 6.34 lakh crore in the December quarter of FY 2017-18.


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