Unlocks in the month of June have led to the sharp bounce back in credit demand by MSMEs, which was dampened by the second wave after a strong fourth quarter of FY21.

Strong rebound in credit demand, accompanied by equally strong credit supply and Emergency Credit Line Guarantee Scheme (ECLGS) support, has led to growth in the credit outstanding amount of MSME sector to Rs 20.21 lakh crore, with a year-on-year growth rate of 6.6 per cent, says a report from TransUnion Cibil and SIDBI.

“In FY2021, the country disbursed loans worth Rs 9.5 lakh crore to MSME sector, higher than preceding year of Rs 6.8 lakh crore in FY 2020,” Cibil said. The total on-balance sheet commercial lending exposure in India stood at Rs 74.36 lakh crore in March 2021, with a year-on-year growth rate of 0.6 per cent.

After the initial drop in commercial credit enquiries by 76 per cent due to the first wave, they recovered fast with ECLGS and have since sustained close to pre-Covid levels. Commercial credit enquiries in March 2021 were 32 per cent over pre-Covid levels, Cibil said. “MSME credit outstanding has grown by 6.6 per cent YoY in March’21, with micro segment growing the fastest at 7.4 per cent.”
Micro segment was followed by the small segment at 6.8 per cent and medium segment at 5.8 per cent. Lending to new-to-bank (NTB) MSMEs has recovered back to pre-Covid levels, while lending to existing-to-bank (ETB) continues to be bouyant. Credit disbursals to NTB MSMEs had dropped by 90 per cent in April 2020 compared to pre-Covid levels, and has gradually returned back to 5 per cent higher than pre-Covid levels in March 2021, Cibil said.

Rajesh Kumar, Managing Director & CEO of TransUnion CIBIL, “the significant surge in MSME credit demand post gradual reopening of the markets, reasserts India’s growth story. The government’s pro-growth initiatives like extending ECLGS support to the tune of Rs 4.5 lakh crores, regulatory reforms like restructuring of loans and the swift implementation of these initiatives by banks & credit institutions using data analytics has fortified MSMEs.” With these progressive policies and support, India’s MSME sector is set on a definite resurgence trajectory and this bodes well for the future strength and growth of our economy, Kumar said.

“The key highlight which signals the revival is credit to new-to-bank (NTB) which has returned back to pre-Covid levels, while credit to existing-to-bank (ETB) remains buoyant. The recent additional relief measures by Government, especially in healthcare, travel and tourism, are expected to improve credit offtake in the MSME sector. Going forward, the lenders need to continuously monitor the health of credit portfolios, while sustaining credit growth to MSMEs,” said Sivasubramanian Ramann, Chairman and Managing Director, SIDBI. Of the MSME that were given loans in the period of January to March 2021, 29 per cent had missed more than one payment in last three months.