MSME Credit Continues to Grow at a Healthy Rate Signalling Rapid Revival

MSME Credit Continues to Grow at a Healthy Rate Signalling Rapid Revival

State-wise MSME opportunity and risk study highlights:

·        Gujarat is the best performer in MSME credit lending in India

·        Maharashtra ranks highest on the Market Size parameter;

·        Andhra Pradesh ranks highest on Market Growth

·        Gujarat tops in maintaining low NPA rate

·        Delhi ranks highest in MSME’sscore quality

The sixth edition of TransUnion CIBIL- SIDBI MSME Pulse Report shows continued growth at 12.4% year-on-year (YOY)in the quarter ending Mar’19. Total debt in India has increased at a CAGR of 13.3% to reach the level of INR 253 trillion in a five year period from Mar’15 to Mar’19. Total debt includes government debt, debt of corporate entities and individual borrowers. The growth in aggregate debt in the past four years is powered by a 22% CAGR growth on lending to individuals (including consumer loan, business loan to individuals and other loans), 13.4% CAGR of lending to commercial entities (including MSME and corporate entities) and a 10.6% of government debt. The comparatively higher rate of individual lending has translated into a major shift in the composition of the lending industry in favour of individuals.

A marked decline in NPAs (non-performing asset) adds a silver lining to these growth trends. The overall gross NPA rate in commercial lending stood at 16.0% in Mar’19– a significant lowering from 17.2% during the same period last year. NPA rate had reached its peak in the period between Mar’18 to Jun’18 for medium and large segment. However, after experiencing along period of stress, the commercial credit sector is on the course to recovery as the NPAs have finally started showing a gradual decline post Jun’18 quarter.

Highlighting the findings from this edition of MSME Pulse, Mr. Mohammad Mustafa, Chairman and Managing Director, SIDBI said:“The sustained growth in commercial lending along with marked lowering of NPAs is a very promising indicator of MSME sector growth which plays a pivotal role incatalysing economic development. Even more interesting is the trend on increasing rate of individual lending for businesses which brings a major shift in the composition of the lending industry in favour of individuals. These findings bode well towards the ease of doing business in India with MSMEs being able to get faster and easier access to credit for driving business growth.”

This edition of MSME Pulse covers a study on state-wise performance analysis on MSME lending under “Credit Opportunity” and “Risk Index” parameters based on a model of ranking the potential of Statestowards extending credit to MSME corporate entitiesdefined basis the aggregate credit exposure up to ₹50 Crores. The MSME Pulse ranking model looks at market size in terms of total credit exposure, accounts and consumers. The YOY incremental changes are also taken into consideration for identifying the market growth for the period starting FY15 to FY19.As part of risk index, delinquency and score quality (risk profile) of customers in the geography is observed.  The study shows that Gujarat has emerged as the top ranking state in terms of performance and growth potential for MSME lending in India followed by Andhra Pradesh, Haryana, Karnataka and Delhi. Other states with high potential in MSME corporate lending are Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and Jammu & Kashmir.

Commenting on this finding on state wise performance, the Managing Director and CEO of TransUnion CIBIL, Mr. Satish Pillai, said: “The state-wise performance insights throw significant light on the credit opportunity, potential of MSME growth and risk predictors across India. Gujarat has consistently ranked no. 1 over the last four years(FY16 to FY19). While Maharashtra ranks highest on market size, itsNPAs are also high indicatingincrease in credit risk. Close monitoring of MSME portfolios and timely risk identification and control measures are crucial towards achieving healthy MSME growth and sustained economic development.”

MSME PulseSixth Edition Highlights

·        Total credit exposure in India stood at ₹116.7 lakh crores: Total credit exposure stood at ₹ 116.7 lakh crores as of Mar’19 of which the corporate segment holds the largest share of 55% and exposure of ₹64.1 lakh crores. The remaining exposure of ₹52.6 lakh crores belongs toindividual lending (Including consumer lending, business lending and other retail, agriculture and priority sector lending.

·        Credit growth resumes in earnest: The year-on-year Commercial credit growth continues to rise clocking 12.4% in the Mar’19 quarter. Large (greater than ₹100 croresexposure) segment has shown high credit growth of 11.8% signalling revival trends. Micro (exposure less than ₹1 Crore) and SME (₹1 Crore-₹25 Crores) segments constitute ₹15.8 Lakh Crores credit exposure (24.9% of commercial credit exposure) scaling YOY growth of 19.8% and 15.6% respectively. In comparison it is 5.5% for MID segment (₹25 Crores-₹100 Crores) from Mar’18 to Mar’19.

·        Gujarat tops credit opportunity and risk index in MSME Segment: Gujarat has emerged as the top ranking state in terms of performance and credit growth potential for MSME corporate lending in India followed by Andhra Pradesh, Haryana, Karnataka and Delhi. Other states with high potential in MSME corporate lending are Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and Jammu & Kashmir. Andhra Pradesh ranks highest in Market Growth in FY19, ranking improved significantly in market growth and delinquency parametersbetween FY17 to FY19. Haryana and Karnataka have got equal scores in MSME Ranking, but Haryana fared better in delinquency and score quality of consumers while Karnataka is positioned well in market size and market growth.Ranking of Haryana has improved significantly in market growth parameter. Delhi ranks highest in low riskiness of MSMEs measured by better CIBIL MSME Rank of entities.

·        Maharashtra slips to Rank 6 due to increase in NPAs: Maharashtra has the highest ranking in Market Size, and tops on credit outstanding, total accounts and borrower count. The rank deterioration is primarily due to the slight reduction in Market growth and increase in NPAs. It slipped to Rank 6 in FY19 because of high increase in NPAs in MSME corporate segment.

Top States in MSME lending opportunity and risk pillars

Pillars (FY19)	Rank-1	Rank-2	Rank-3	Rank-4	Rank-5
Market Size	Maharashtra	Tamil Nadu	Karnataka	Gujarat	Uttar Pradesh
Market Growth	Andhra Pradesh	Tamil Nadu	Karnataka	Kerala	Bihar
Delinquency	Gujarat*	Jammu &Kashmir	Uttarakhand	Haryana	Chhattisgarh
Score Quality	Delhi	Maharashtra	Gujarat	Goa	West Bengal

* Gujarat also ranks highest in maintaining low delinquencies on MSME lending

·        Continued growth in individual lending: Total debt in India has increased at a CAGR of 13.3% to reach the level of INR 253 trillion in a five year period from Mar’15 to Mar’19. Total debt includes government debt, debt of corporate entities and individual borrowers. The growth in aggregate debt in the past four years is powered by a 22% CAGR growth on lending to individuals (including consumer loan, business loan to individuals and other loans), 13.4% CAGR of lending to commercial entities (including MSME and Corporate entities) and a 10.6% of government debt. The comparatively higher rate of individual lending has translated into a major shift in the composition of the lending industry in favour of individuals.

·        Low MSME credit penetration observed in Bihar, Odisha and Uttar Pradesh:Credit penetration in States are defined as MSME debt/State deposit and MSME debt/State GDP ratio. It is observed that credit penetration is very low in Bihar, Uttar Pradesh & Odisha, hence opportunity to lend is veryhigh in these States.

About SIDBI

Small Industries Development Bank of India (SIDBI), is the Principal Financial Institution for the Promotion, Financing and Development of the Micro, Small and Medium Enterprise (MSME) sector and for Co-ordination of the functions of the institutions engaged in similar activities. The business domain of SIDBI consists of Micro, Small and Medium Enterprises (MSMEs), which contribute significantly to the national economy in terms of production, employment and exports. SIDBI meets the financial and developmental needs of the MSME sector with a Credit+ approach to make it strong, vibrant and globally competitive. SIDBI has adopted thrust on MSE and digital offerings as its mainstay. For more information, visit www.sidbi.in.

About TransUnion CIBIL

TransUnion CIBIL is India’s leading credit information company and maintains one of the largest repositories of credit information globally. We have over 3000 members–including all leading banks, financial institutions, non-banking financial companies and housing finance companies–and maintain more than 1000 million credit records of individuals and businesses.

Our mission is to create information solutions that enable businesses to grow and give consumers faster, cheaper access to credit and other services. We create value for our members by helping them manage risk and devise appropriate lending strategies to reduce costs and increase portfolio profitability. With comprehensive, reliable information on consumer and commercial borrowers, they are able to make sound credit decisions about individuals and businesses. Through the power of information, TransUnion CIBIL is working to support our members drive credit penetration and financial inclusion for building a stronger economy.

We call this Information for Good. For more information visit: www.transunioncibil.com

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