Micro enterprises best placed to help economy come out of COVID-19 crisis; eligible to get financial aid from credit institutions: Report

Mumbai: Micro enterprises, with borrowings of less than Rs 1 crore, are best placed to help the economy come out of the COVID-19 crisis, Small Industries Development Bank of India (SIDBI) and TransUnion CIBIL said on Thursday.

In a joint report, the two entities said leverage ratios and non-performing assets (NPAs) of micro enterprises are the lowest in the commercial segment. They also did an impact analysis on the sector’s response to two of the biggest business shocks in recent times – drying up of NBFC credit following the IL&FS crisis, and GST implementation.

As per the report, micro enterprises have been classified as those with borrowings of less than Rs 1 crore.

The economy has been severely impacted due to the COVID-19 pandemic but the government and policymakers are looking for segments that are in the best position to help revive the economic activity the quickest.

“The micro segment can be the next growth driver for the economy and credit institutions must capitalise on this opportunity by identifying the micro segment entities that have stood strong through the past disruptions and fund them during these times,” SIDBI Chairman and Managing Director Mohammad Mustafa said.

From the NPA perspective, bad loans in the very small (under Rs 10 lakh exposure) segment stood at 11.3 percent as of December 2019, as compared to stress of 17.3 percent in the overall commercial lending segment, 18.7 percent for the medium corporate segment and 19.1 percent for the large corporate segment.

In the report, both the entities analysed the response from a loan delinquency perspective after both the GST implementation and the drying up of financing by the non-bank lenders following the IL&FS crisis to show that the NPA accretion by micro enterprises was low.

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In January 2020, 63 percent of the active MSMEs (micro, small and medium enterprises) were in the structurally strong risk segment having a CIBIL MSME Rank (CMR) between 1 and 5, while 37 percent MSMEs are in CMR 6 to 10, the report said, speaking of the current liquidity and leverage positions of the small businesses.

“Structurally strong MSMEs are better positioned to survive the current pandemic situation and emerge stable. These MSMEs are the most eligible to receive financial assistance from credit institutions,” Cibil Managing Director and Chief Executive Officer Rajesh Kumar said.

In 2019, the micro segment received a total credit support of over Rs 92,000 crore from banks and other lenders, with businesses in Maharashtra getting the highest share of the loans, while the loan growth in Rajasthan was the fastest.

It said the state-run lenders, which had ceded some share in the MSME lending, have gained market share in 2019, adding that public sector banks now account for 49 percent of the MSME lending and over 59 percent of the lending to the micro enterprises.

The overall lending to commercial enterprises of all sizes increased by a tepid 3.9 percent at Rs 64.04 lakh crore, it said.