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MSME, infra account for 86% of industry credit in April-Nov FY22: SBI’s Soumya Kanti Ghosh

Credit and finance for MSMEs: MSE credit increased to Rs 79,300 crore in April-November from Rs 24,300 crore during the year-ago period.

Credit and finance for MSMEs: Gross bank credit across sectors in the current fiscal stood at Rs 10.56 lakh crore as of November end – five times higher than Rs 2.12 lakh crore during the similar period (April-November) in the previous fiscal, said Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India tweeting data on bank credit till November. “Credit is expanding across all sectors but notably, MSME and Infra account for 86 per cent of industry credit. Housing loans, NBFCs and even agri have jumped manifold!” said Ghosh.

During the eight-month period in the current fiscal, credit to micro and small enterprises (MSEs) stood at Rs 79,300 crore under priority sector loans, up around 3.3X from Rs 24,300 crore during the April-November period in FY22, showed data tweeted by Ghosh on December 30.

Importantly, the Reserve Bank of India (RBI) had last raised the repo rate on December 7 by 35 per cent to 6.25 per cent which took the cumulative hike to 225 bps since May this year. This hike cycle will increase the interest cost for MSME and retail consumers by around Rs 68,625 crore, Ghosh noted in an Ecowrap by SBI Research report in December. With around 47 per cent of the loans benchmarked to external benchmarks (EBR), the increase in repo rate of 225 bps will eventually increase interest cost further, he said. 

While the cost may go up, the loan repayment period for small businesses is also a challenge. Currently, the time limit for MSMEs to repay credit is 90 days. However, MSMEs have urged the government to enhance it to 180 days. The 180-day repayment limit will not just allow banks to be a bit more willing in lending to MSMEs but will also let the latter have more time to arrange funds and improve their ability to repay loans.  

“The working cycle of MSMEs in many cases extends much beyond the 90-day period, thereby MSMEs struggle to receive timely payments from their buyers, and end up defaulting on loans in multiple cases,” said industry body PHD Chamber of Commerce and Industry in its budget recommendations to the government in December.