In just one year, loan defaults by small businesses double: RBI
Two weeks ago, a report by the Reserve Bank of India (RBI) found that exports of Micro, Small and Medium Enterprises (MSMEs) were hit more by the issues related to implementation of the goods and services tax than demonetisation. Today, in response to a Right to Information request filed by The Indian Express, RBI said that MSMEs’ loan default margin doubled in the past year (from Rs 8,249 crore in March 2017 to Rs 16,118 crore in March 2018).
The RBI says that non-performing assets (NPAs), where investment in plant and machinery is between Rs 25 lakh and Rs 5 crore, rose from Rs 82,382 crore to Rs 98,500 crore by March 2018.
The majority of loan defaults (65.32%) is accounted by public sector banks. It was also found that outstanding advances to micro and small units increased by 6.72% between March 2017 and March 2018.
A recent report by The Boston Consulting Group (BCG) on the Indian banking industry found that the concerned businesses have registered a significantly higher year-on-year credit growth compared to overall small ticket loans. The report also identified the following trends in MSME lending:
- Advances to SMEs growing at 22% for private new banks in line with NBFCs leading the growth in this space
- Within MSMEs, private and new banks lending primarily to small enterprises.
- Advances to small enterprises witnessing highest growth among sub-segments
- States with lower MSME credit penetration show higher growth in MSME credit
- Robust growth in fee income seen, other income lags due to trading losses
- Banks leveraging growth in mutual funds to boost fee income
- Assets under management contributed by retail segment grew at a CAGR of 32% from FY14 to FY18