March credit growth to small businesses lowest in 10 months; MSE gross bank credit share dips further

YoY credit growth to medium enterprises in March stood at 57.8 per cent.

Credit and Finance for MSMEs: The year-on-year growth in the deployment of gross bank credit to micro and small enterprises (MSEs) in March plunged to its lowest level, amid the second Covid wave, since May in the financial year 2020-21. The credit outstanding as of March 26, 2021, for the MSE sector, stood at Rs 11.07 lakh crore – up only 2.5 per cent from Rs 10.8 lakh crore in March 2020, according to the monthly bulletin by the Reserve Bank of India. However, the credit growth in March 2021 was down from 6.9 per cent YoY growth in February 2021 and lowest since 1.5 per cent YoY growth in May 2020.

The fall from 7.7 per cent in March last year to 3.3 per cent in April had reflected the likely early impact of the Covid breakout. Likewise, the current decline followed the second wave of the deadly virus that had started to hit in February. The credit growth had bounced back to 6.5 per cent in June last year after two months of decline.

On the other hand, the share of MSEs in India’s gross bank credit had continued to decline for the third straight month. From 12.11 per cent in December 2020, the MSE share contracted to 12.09 per cent in January 2021 and 11.8 per cent in February before slipping further to 11.3 per cent in March. The overall gross bank credit as of March 26, 2021, stood at Rs 97.2 lakh crore. Meanwhile, credit growth to medium enterprises in March was 57.8 per cent at Rs 2.06 lakh crore from Rs 1.30 lakh crore in March 2020.

Also read: CGTMSE: MSE loans approved in Covid-hit FY21 second highest in 7 years despite 26% YoY decline

In order to support credit availability with MSMEs, RBI in February this year had allowed scheduled commercial banks to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio (CRR). However, RBI Governor Shaktikanta Das earlier this month had extended this exemption, which was available for exposures up to Rs 25 lakh and for credit disbursed up to the fortnight ending October 1, 2021, till December 31, 2021. Das had also allowed individuals, small businesses, and MSMEs with loans up to Rs 25 crore and who had not availed restructuring under any of the earlier restructuring frameworks including under the Resolution Framework 1.0 as of August 6, 2020, and who were classified as ‘Standard’ as on March 31, 2021, to be eligible “to be considered under Resolution Framework 2.0.”

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