The fourth edition of TransUnion CIBIL- SIDBI MSME Pulse Report shows that commercial credit growth recovery continues at 13.5% YOY growth in the Sep’18 quarter.
The report further states that the total on-balance sheet credit exposure in India stood at Rs 105.5 lakh crores as of Sep’18 of which MSME credit accounts for Rs 24.7 lakh crores, including credit to MSME entities and credit to individuals for business purposes. The overall gross NPA rate of commercial lending was at 17.5% in Sep’18 versus 15.5% in Sep’17. The stock of gross NPA in commercial exposure increased by Rs 2.23 Lakh Crores in Sep’18 over Sep’17. TransUnion CIBIL Commercial Bureau has over 7 million live business entities ranging from proprietorship/partnership firms to publicly listed entities. The credit data is updated monthly with exposure and performance details from Banks, NBFCs, HFCs, Cooperative banks, Regional Rural Banks and other regulated
Speaking on this report, Mohammad Mustafa, Chairman and Managing Director, SIDBI said “This edition of MSME Pulse throws some very interesting insights with reference to the credit cost to MSMEs. Data analysis on Credit cost study reveals that fresh NPA Rate of the MSME segment has been between 1% – 1.5% per quarter and recovery rates have been between 0.4% – 0.8% depending on type of loan and risk associated with the borrower. The industry annual credit cost in the 4 quarters is 1.8% from Jun’17 to Jun’18.
The Return on Asset (ROA) of lending in the segment is estimated at 2% – 5%, which is a healthy rate of return. MSME segment continues to be profitable for the credit industry and promises potential of growth and healthy returns”.
The fourth edition of MSME Pulse also covers insights from a loan stacking study which highlights that default rates in borrowers taking multiple loans from multiple lenders within a period of 60 days have increased from 2.5% to 4.4% during Sep’15 to Sep’18 period. This implies that stacked loans by borrowers have a higher potential of turning
into NPAs. This phenomenon is predominantly observed on loans sanctioned by NBFCs. The study shows that 45% of the sanctions showing Loan Stacking behaviour belong to loans sanctioned by NBFCs and 23% of the borrowers who have taken loans from NBFCs fall in this category.
Cautioning MSME lenders on loan stacking behaviour, the Managing Director and CEO of TransUnion CIBIL – Satish Pillai said “MSME Lenders must keep track and closely monitor borrowers seeking and availing loans from multiple lenders within a period of 60 days. Our study has observed a direct correlation between loan stacking behaviour and probability of default by such borrowers. The risk of default on loans taken by borrowers who have
stacked their loans has increased in the last 3 years and therefore lenders must establish prudent processes and policies to detect and mitigate risks arising from loan stacking behaviour. Regular monitoring of portfolios can alert the lender and enable timely intervention to deter defaults and losses.”
There are overall 128 lending institutions having MSME portfolio size of Rs 100 crores and above. Of these, 77 are NBFCs which together hold a market share of 17% on new credit sanctions during Apr’18 to Sep’18. The study also reveals that NBFCs are most active in the top 10 locations (basis portfolio size), where they account for 22% of fresh loan sanctions to the MSME segment. Sectors which are most dependent on NBFC funding include Transport & Logistics, Real Estate, Education, Healthcare, Mining & Construction.”
MSME Pulse Fourth Quarter Edition Highlights
Total credit exposure in India stands at Rs 105.5 lakh crores: Total credit exposure stood at Rs 105.5 Lakh Crores as of Sep’18. MSME credit accounts for Rs 24.7 Lakh Crores including credit to MSME entities and credit to individuals for business purposes. Large and MID Corporates account for Rs 44.4 lakh crores. Other than Rs 36.5 Lakh Crores of Agri & Retail credit segment, the MSME credit exposure is at 35.6% of the overall exposure to businesses.
Credit growth recovery on a firm footing: In the previous edition of MSME Pulse, we had expected the overall credit growth to be sustainable given the growth in the Large Segment. The Year-on-year (YOY) commercial credit growth continues to rise clocking 13.5% YOY growth in the Sep’18 quarter. Overcoming the low growth in Sep’17, Large (greater than Rs 100 Crores exposure) segment has shown three consecutive quarters of high credit growth signalling sustainability in this segment. Micro (exposure less than ?1 Crore) and SME (Rs 1 Crore- Rs 25 Crores) segments constitute Rs 14.3 Lakh Crores credit exposure (24.3% of commercial credit exposure) with YOY growth of 22.3% and 18.4% respectively. In comparison it is 7.2% for MID (?25 Crores-?100 Crores) and 12.0% for Large (greater than ?100 Crores exposure) from Sep’17 to Sep’18.
MSME Credit Costs: Credit cost study investigates the MSME portfolio performance from a profit & loss perspective on a quarterly basis. The study has been done from Sep’16 to Jun’18. The study shows that fresh NPA Rate of the MSME segment has been between 1% – 1.5% per quarter and recovery rates have been between 0.4% – 0.8%. The industry annual credit cost in the 4 quarters from Jun’17 to Jun’18 is 1.8%. Given that the net interest margin (NIM) in this segment range from 4% to 7% depending on type of loan and risk of the borrower, the Return on Asset (ROA) of lending in the segment can be estimated to be between 2% – 5%, which is a healthy rate of return.
Loan Stacking Study – Banks need to be prudent with borrowers taking multiple loans within 60 days: The loan stacking study covers MSME segment with aggregated exposure at entity level between 10L-10crs. It shows that default rates in borrowers taking multiple loans from multiple lenders within a period of 60 days have increased from 2.5% to 4.4% from Sep’15 to Sep’18.
This has been due to a slight deterioration in acquisition quality measured by the proportion of fresh acquisitions in the low risk CMR 1-3 bands compared to other bands. The study also shows that NBFC borrowers are more prone to exhibit loan stacking behaviour with 23 % of borrowers sanctioned by NBFCs exhibiting loan stacking behaviour
and NBFCs contributing to about 45% of sanctions under loan stacking.
Vintage Analysis – Acquisition Quality Stable: NPA vintage study covers all the MSME segments upto 25crs aggregated credit exposure excluding very small segment (10L). It defines how the quality of acquisitions have moved in the MSME segment. All the fresh acquisition in a period is considered and default rates within the portfolio is observed in the subsequent quarters. The vintage curve for fresh acquisitions done from Mar’14 to Jun’18 is analysed. It is observed that the MSME default rates have remained stable till 4 th quarter in Private the range of 0.5 – 0.8% and default rates between 1.5 – 2.5% by Q8. Private Bank’s acquisitions are stable with default rates of 0.1 – 0.3% by Q4 and 0.5-0.8 % by Q8. The default rates of Public Sector Banks are higher at 0.7 – 1.3% by Q4 and 1.9 – 3.0% by Q8. The default rates of NBFCs are higher than Private Banks but lower than Public Sector Banks at
0.4 – 1.6% by Q4 and 1.5 – 3.0% by Q8.
NBFC Share in MSME lending has been increasing: The share of NBFCs in new credit sanctions to MSME segment has increased from 13% in Sep’15 to 17% in Sep’18. Number of NBFCs having over 100 Cr MSME portfolio has increased in the same period from 51 to 77, while total number of such financial institutions stand at 128. Sectors, which are the most dependent on NBFC funding, include Transport & Logistics which have 35% dependency on NBFC finance, Real Estate, Education, Healthcare, Mining & Construction. NBFCs are most active in the top 10 locations (top locations basis portfolio size) where their contribution of fresh loan sanction to the MSME segment is 22%.