Banks Witness Improvement In MSME Portfolio Quality As NPAs Decline RBI Report

Banks Witness Improvement In MSME Portfolio Quality
As NPAs Decline: RBI Report

The Reserve Bank of India (RBI) reveals an improvement in the quality of the Micro, Small, and, Medium Enterprise (MSME) portfolio for Scheduled Commercial Banks (SCBs) in the first half of the current financial year, as per the Financial Stability Report, released on 28^th December 23.
 
The Gross Non-Performing Assets (GNPA) for MSMEs declined to 4.7% in September 2023, showcasing a positive trend compared to 6.8% in March 2023 and 7.7% in September 2022.
In March 2022, the GNPA ratio stood at 9.3%.
 
However, Special Mention Accounts (SMA-2) experienced a slight increase, rising to 1.7% in September 2023 from 0.9% in March 2023. SMA-2 accounts pertain to borrowers unable to repay the loan amount for over 60 days and up to 90 days.
 
The report reviews a sector-wise analysis of Non-Performing Assets (NPAs) of loans extended under the government's Emergency Credit Line Guarantee Scheme (ECLGS).
Services and trade, constituting a third of ECLGS disbursements, continue to face stress and contribute to nearly half of the total delinquencies, as per the report.

While services represent 24% of ECLGS delinquencies, trade holds a 20% share. Additionally, textiles and food processing account for 4% and 6%, respectively. The overall GNPA of loans under ECLGS increased to 6.5% in September 2023 from 5.5%in March 2023.
 
ECLGS, which concluded on March 31, 2023, witnessed nearly 90% of the total disbursals of around Rs 2.91 lakh crore from SCBs. Contact-intensive services, including hotels, restaurants, travel agents, tour operators, private bus operators, car repair services, and traders, were the primary sectors benefitting from ECLGS loans.
 
Despite the ECLGS expiration, the RBI report highlights increased lending by both public and private sector banks to MSMEs in H1, indicating the underlying growth momentum of the sector.

As of September, the report added, public sector banks witnessed a credit growth of 16.4%, up from around 14% in March 2023 and approximately 5% from September 2022.

Private Banks demonstrated a credit growth of 24.9% in September 2023, compared to around 13% in March 2023 and about 25% in September 2022.

The gross bank credit deployed to MSMEs under priority sector lending in October totalled Rs 23.15 lakh crore, marking a substantial 22.8% increase from Rs 18.8 lakh crore in October last year and an 11.8% rise from Rs 20.6 lakh crore in September this year.