The report Banking for a Viksit Bharat said there is an opportunity for lenders to use data including bank statements, tax, payment gateway data, etc., to completely reimagine MSME lending.
Despite the increasing formalization of MSMEs and data footprint, banks are unable to sustain lending relationships profitably, said a FICCI-IBA report on banks’ role in India’s aim to become a $30 trillion economy by 2047. The report Banking for a Viksit Bharat said there is an opportunity for lenders to use data including bank statements, tax, payment gateway data, etc., to completely reimagine MSME lending.
“Lenders that have got this right are performing significantly better than their private or public sector peers,” the report said.
Since 2020, the MSME ecosystem’s data footprint has been on the rise with Udyam registration growing from 13 lakh in 2020 to 2.84 crore in the current year, GST registrations jumping from 1 crore to 1.47 crore while QR code penetration scaling from 3 crore to 4.50 crore, the report highlighted.
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As a result, Mudra loans jumped from 84 lakh in FY19 to 1.92 crore in FY23 while other MSME loans increased to 35 lakh from 22 lakh.
“While access to formal financing remains a challenge, several reforms have increased the richness of the MSME data footprint (Udyam, QR codes, UPI payments, GST, etc.) and guarantee schemes (CGTMSE, CGFMU, etc.) have facilitated a large number of MSMEs to move towards formal financing,” the report added.
However, lending to new-to-credit (NTC) MSME customers is complex and underwriting standards need to strengthened substantially, it stated.
According to the data shared, NTC accounts with credit expansion has declined by 25 per cent from FY19 to FY21 and by 12 per cent from FY22 to FY24. Moreover, bad rates (90+ days past due within 12 months on volume) for NTC MSMEs has increased from 3.3 per cent in FY19 to 5.7 per cent in FY23.
“MSME lending continues to be challenging. It requires lot more effort and advanced underwriting capabilities. The stark difference in NPA levels among lenders is attributable to these capabilities,” the report noted.
