The number of micro, small and medium enterprises (MSMEs) seeking credit for the first time increased significantly to about four lakh in July-December (H2) 2017 from about three lakh in the January-June (H1) 2017 period.

According to ‘MSME Pulse’, a joint report by SIDBI and TransUnion CIBIL, the highest growth has been observed in the very small segment (less than ₹10 lakh exposure) in H2-2017.

“This acceleration coincides with a high number (about 34 lakh) of new firms which have been formalised by registering themselves for GST (Goods and Services Tax).

“As a percentage of the total borrower base, new to credit (NTC) additions grew from 7.2 per cent (H1-2016) to 9.7 per cent (H2-2017) in the very small borrower segment and 4.3 per cent to 5.2 per cent in the MSME segment,” the report said.

Entities seeking formal credit for the first time are defined as NTC borrowers.

As such, according to the report, NTC borrowers need not be new to bank (NTB) since a lot of them would be having banking relationship in the form of current and savings account.

MSME: Silver lining

Micro (credit exposure of less than ₹1 crore) and small and medium enterprise (₹1 crore to ₹25 crore) segments provide the silver lining to the commercial lending space, recording year-on-year (y-o-y) growth of 20 per cent and 9 per cent, respectively, from December 2016 to December 2017.

Comparatively, mid (₹25-100 crore) and large (exposure greater than ₹100 crore) segments have grown by 4 per cent and 0.5 per cent, respectively, from December 2016 to December 2017.

The report said public sector banks (PSBs) are dominant contributors in providing access to finance to the ‘very small’ segment (less than ₹10 lakh) NTC borrowers. PSBs are playing a critical role in enabling financial inclusion of micro enterprises and hold 79 per cent share in onboarding NTC borrowers in this segment. The share of PSBs to NTC borrowers with an exposure of ₹10 lakh to ₹10 crore is 51 per cent.

Private sector banks and non-banking finance companies have shown higher willingness to extend credit to NTC borrowers in the MSME (10 lakh to ₹10 crore) compared to the smaller and less formal segment.

The total on balance-sheet commercial lending exposure in India stood at stood at ₹51.3 lakh crore as of December-end 2017 with micro and SME segments constituting 23 per cent of the total.

Large corporates having an aggregate exposure of more than ₹100 crore account for 67 per cent of the commercial credit outstanding.

MSME: NPA rates range-bound

The non-performing asset (NPA) rates in the micro and SME segments have stayed range-bound with an increase from 8 per cent to 8.8 per cent and 9.8 per cent to 11 per cent, respectively, during the two-year period from December 2015 to December 2017.

The NPA rates of large corporates has increased significantly over the last two years from 7.9 per cent in December 2015 to 16.9 per cent in December 2017.

The report said the NPA rates of mid and large segments have rapidly increased, which coincided with RBI’s asset quality review.