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Pandemic-hit micro-enterprises continued to report higher stress in FY23 even though credit flow to the MSME (micro, small and medium enterprises) sector grew in double digits during the year, according to the latest RBI Financial Stability Report.
The MSME sector, which was crippled by Covid-19 pandemic, reported a turned around during the second half of FY22 and sustained this momentum during FY23.
Credit to MSMEs grew in the range of 13.8–18.9 per cent in FY23, on account of strong institutional support, which includes the Emergency Credit Line Guarantee Scheme (ECLGS) and regulatory modifications in the definition of MSMEs.
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The asset quality of the MSME portfolio of Scheduled Commercial Banks (SCBs) improved significantly during FY23 with the GNPA ratio declining from 9.3 per cent in March 2022 to 6.8 per cent in March 2023 and the GNPA ratio for advances below ₹25 crore, which are particularly vulnerable to slippage, also declining sequentially from 7.2 per cent to 6.7 per cent. Also, SMA accounts went down from 11 per cent in March 2022 to 8.6 per cent in March 2023.
Importantly, the improvement in asset quality has coincided with the expiry of regulatory forbearance and restructuring schemes introduced in 2018, it said.
Under the ECLGS scheme, which expired on March 31, 2023, SCBs accounted for almost 90 per cent of total disbursals (₹2.91 lakh crore). Contact-intensive services and traders were the major sectors availing ECLGS loans, which played a pivotal role in providing support and additional liquidity for MSMEs to tide over Covid-19.
A disaggregated analysis of borrowers availing the ECLGS indicates that one-sixth of accounts and one-twentieth of the amount disbursed turned non-performing.
Stress was predominant in the micro-enterprises segment, with nearly one-fifth of borrowers and a tenth of the amount disbursed turning delinquent.
Sector-wise analysis of NPAs indicates that services and trade, which formed one-third of the ECLGS disbursements, remain stressed and accounted for nearly half of the total delinquency (services 27 per cent and trade 22 per cent), under the ECLGS in these cohorts. Textiles and food processing units together accounted for about 11 per cent.
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