During the five-year period, the credit outstanding to the MSME sector grew by 49.6 per cent from Rs 15.10 lakh crore during FY19.
Bank loan to MSMEs: The credit outstanding to the MSME sector by scheduled commercial banks in the financial year 2022-23 grew by 12.3 per cent to Rs 22.6 lakh crore from Rs 20.11 lakh crore in FY22, according to the data shared by Bhanu Pratap Singh Verma, Minister of State in the MSME Ministry in a written reply to a question in the Rajya Sabha. The amount outstanding in FY21 and FY20 stood at Rs 17.83 lakh crore and Rs 16.13 lakh crore respectively. During the five-year period, the credit outstanding to the MSME sector grew by 49.6 per cent from Rs 15.10 lakh crore during FY19.
According to the latest sectoral deployment data from the Reserve Bank of India (RBI), Rs 20.20 lakh crore bank credit under priority sector lending — 14.5 per cent of India’s total non-food bank credit worth Rs 138.5 lakh crore — was deployed in the MSME sector in May 2023 in comparison to Rs 19.84 lakh crore – 14.3 per cent of Rs 138.36 lakh crore non-food bank credit deployed in April 2023.
The growth in MSME credit gains significance amid the vast credit gap in the sector. According to investment banking firm Avendus Capital, the total credit gap in the MSME sector was $530 billion out of the total addressable credit demand of $819 billion, of which only $289 billion MSME loan demand has been fulfilled through formal credit lenders such as private banks, public banks and NBFCs.
Under the PSL guidelines, banks are required to allocate a specified percentage of their total lending to these priority sectors. Currently, for domestic commercial and foreign banks with 20 branches and above, the overall PSL target is set at 40 per cent of their total adjusted net bank credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE).
The RBI’s Deputy Governor M. Rajeshwar Rao addressing the 31st Annual Management Convention of Thrissur Management recently had called for addressing the vast opportunity to fulfilling the existing credit gap in the MSME sector by banks and other financial institutions. Rao underscored that the “critical issue in India’s credit market has been the consistent gap between the demand and supply of credit to MSMEs.”