Easing liquidity stress and steady asset quality: General outlook for MSMEs improving, says ICICI Securities
A few large private banks are now lending to MSMEs at rates at par with that of PSBs, said the report
The general outlook for micro, small and medium enterprises (MSMEs), though not yet back to pre-Covid levels, is improving, with liquidity stress easing and steady asset quality, according to ICICI Securities (I-Sec).
The key takeaways from a meeting, hosted by I-Sec with a representative from a leading MSME rating agency, include: 65 per cent of MSMEs availing of benefit under ECLGS, with cashflow pressures easing for 61 per cent of them and 35 per cent benefitting from
reduced rates; and disbursals to Existing to Bank (ETB) MSMEs doubling and credit picking up for New to Bank (NTB) MSMEs as well.
Since the introduction of ECLGS, 1.15 crore MSMEs have been granted guarantees amounting to ?2.86-lakh crore. Maharashtra, Tamil Nadu and West Bengal accounted for the majority of credit offtake under ECLGS, and West Bengal, Tamil Nadu and Andhra Pradesh under the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises).
The report noted that MSME segment credit exposure rose 6.6 per cent year-on-year (YoY) in FY21 to ?20.2-lakh crore led by disbursements of ?9.5-lakh crore in FY21.
“The jump in MSME lending has been led by Existing to Bank (ETB) entities as credit disbursals to such MSMEs more than doubled in June 2020 and has since sustained at pre-Covid levels.
“Over time, credit to New-to-Bank (NTB) MSMEs is also picking up after having dropped more than 90 per cent in April 2020. In March 2021, it has already returned to higher than pre-covid levels,” I-Sec Research Analysts Kunal Shah, Renish Bhuva and Chintan Shah said in a report.
The report noted that industries that were severely impacted by the pandemic — such as tourism, aviation, and hotel — are now reviving.
Auto is gradually moving back to pre-Covid levels and has received impetus due to EV gaining traction, technology upgradation and product line change.
Textile industry outlook is promising with a lot of restraints being put on China and various subsidies being provided to the sector. Many of the entities in this industry are either enhancing capacities or incurring fresh capex.
On the export front, chemical industry is doing exceptionally well. Pharma industry performance has been consistently growing.
Infra projects are witnessing decent traction with many projects stuck during the pandemic now up and running.
Also, incrementally, tender award has been rising. Consequently, related industries such as cement, iron and steel, etc are also expected to do well. Most MSMEs have exhibited
improved earnings trajectory in FY22.
Steady asset quality
The I-Sec analysts observed that Non-Performing Asset (NPA) rates in the MSME segment remained steady at 12.25 per cent in FY21 vs 12.6 per cent in FY20.
“This can be attributed to high credit supply since the introduction of ECLGS as well as restructuring benefit,” they said.
Moreover, NPA rates of private banks lending to MSMEs have been stable from September 2020 to March 2021, while NBFCs (non-banking finance companies) have seen steady growth in NPA rates during the same period.
Rise in NPA rates for MSMEs for NBFCs is due to more pronounced slowdown in credit
growth to MSMEs by NBFCs.
The report noted that over the past few quarters, private sector banks as well as public sector banks (PSBs) have been actively pursuing the opportunity to provide liquidity to MSMEs.
Capex financing is still dominated by PSBs, but private banks are active in working capital finance.
“NBFCs, with relatively higher rates, are preferred due to ease of access, better turnaround time and for bridge gap financing. After the client’s repayment track record is established, it is refinanced by banks,” the analysts said.
Moreover, a few large private banks are now lending to MSMEs at rates at par with that of PSBs at as low as 7-7.5 per cent.