Micro, small and medium enterprises (MSMEs) are recovering from the impact of the pandemic, going by the healthy credit demand from the segment, according to S Ramann, CMD, Small Industries Development Bank of India (IDBI).

‘’Within the MSME segment, some of the micro and tiny enterprises did collapse (due to impact of pandemic). So, the resilience has been in the small and medium enterprises segments,” said Ramann, in an interaction with BusinessLine.

As per latest Reserve Bank of India (RBI) data, in July 2022, credit growth of micro and small industries accelerated to 28.3 per cent from 10.5 per cent. Medium industries recorded credit growth of 36.8 per cent in July 2022 compared with 59 per cent last year.

“When we look at the trend in Emergency Credit Line Guarantee Scheme (ECLGS) loans, which have now moved away from the Covid-related moratorium provided by the RBI and have entered the repayment phase, we find that the non-performing assets (NPAs) are not that high.

“So, if one was expecting NPAs of 12 or 14 per cent, it is not at that level. They are still quiet muted. NPAs will obviously exist as some MSMEs are still taking some time to recover from the pandemic,” he said.

As per industry estimates, NPAs in the loans given to MSMEs under ECLGS could be about 5-6 per cent.

Also read: How to tackle delayed payments to MSMEs

According to RBI’S latest financial stability report, ECLGS, a government initiative launched on May 20, 2020 to provide 100 per cent guarantee coverage from National Credit Guarantee Trustee Company to select borrowers, has played a key role in reviving the MSME sector.

Loans amounting to ₹3.32 lakh crore were sanctioned under the ECLGS, till April 30, 2022, of which ₹2.54 lakh crore was disbursed by lenders.

Ramann emphasised that the pick up in credit demand is visible across the country. Despite an increase in lending rates, credit demand has not slowed down.

“We are also hoping that NPAs in the MSME segment might become standard assets. So, many banks are taking the view of ‘let us not start immediate action against the enterprises, which have become NPA. Let us not do OTS (one time settlement) or initiate recovery proceedings immediately. Let us give them some time and see if they can come out,” said the SIDBI Chief.

SIDBI was set up in 1990 by the Government under the SIDBI Act, 1989, as the apex development financial institution for promoting, financing, and developing of industry in the small-scale sector and to co-ordinate the functions of institutions engaged in the promotion, financing or developing industry in the small-scale sector.

Udyam registration & credit card

Ramann oberved that SIDBI is working with the MSME Ministry to formalise informal MSMEs by encouraging them to get ‘Udyam Registration’, which requires only Aadhar number for registration, paving the way for accessing bank credit. He emphasised that loans given by banks to entities with this registration are classified as priority sector lending.

Referring to the recommendation of the Parliamentary Standing Committee on Finance that lenders should provide ‘Vyapar credit card’ to all MSME promoters having Udyam registration, he said SIDBI is working on this proposal with the Indian Banks’ Association, with guidance from the Department of Financial Services and MSME Ministry.

Ramann observed that SIDBI can do co-branding of the Vyapar credit cards with a few banks to alleviate the credit risk.

Also read: Rural MSMEs in urgent need of funding, says MSME Export Promotion Council