Aided by the government’s credit guarantee scheme, credit growth by Micro, Small and Medium Enterprises (MSMEs) have made a strong rebound to the pre-Covid levels, with credit exposure at Rs 19.09 lakh crore as of September 2020, showing a year-on-year growth of 5.7 per cent.
According to a TransUnion Cibil report, with the launch of the Emergency Credit Line Guarantee Scheme (ECLGS), loan originations surged in June 2020, growing at 115 per cent over June 2019 and continued to be high and close to pre-Covid-19 levels for the remainder of the year. “This strong rebound in MSME loan originations was driven by the existing-to-bank (ETB) segment,” it said. Borrowers who have an existing commercial credit relationship with the lender are defined as ETB.
MSMEs had a tough time when the pandemic surfaced last March, with hundreds of units closing down in the wake of lockdown and demand slowdown. Cibil said the total on-balance-sheet commercial lending exposure in India stood at Rs 71.25 lakh crore in September 2020, clocking a growth rate of 2.1 per cent y-o-y.
The rebound is primarily due to the design of the ECLGS, where the guidelines mandate lenders to extend 20 per cent of credit to existing borrowers, the credit information bureau said. Consequently, the y-o-y growth in ETB loan originations crossed 200 per cent in the first month of the ECLGS infusion. Since then, this spike has tapered off, but ETB originations continue to stay buoyant. On the other hand, new-to-bank (NTB) originations are finding it hard to recover to pre-Covid levels, Cibil said.
TransUnion Cibil MD and CEO Rajesh Kumar said: “The resurgence in MSME credit growth, which is back at pre-pandemic levels, is a very promising indicator of economic recovery in our markets. Public sector banks are the leading drivers of this resurgence as they have astutely wielded data analytics and credit information solutions to swiftly comply with the ECLGS guidelines and dexterously implement lending to MSMEs.”
Under the aegis of the government’s ECLGS, commercial credit enquiries surged 58 per cent y-o-y in June 2020 and stabilised toward the end of the year, up around 13 per cent (y-o-y) as of last December, which is similar to pre-Covid-19 growth levels.
The Cibil report said MSME loan originations growth during January 2020 and February 2020 was over 30 per cent y-o-y. However, this growth rate reduced significantly in March 2020 and April 2020 consequent to the Covid lockdowns.