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contribute to about 42 % of GDP(2). In India too, according 658 billion) share in total NPAs by public sector banks (PSBs)
to Annual Report 2015-16 of MSME Ministry, Government in the priority sector, and 13.1 per cent (Rs 757 billion) in
of India, the MSME sector today is a network of 51 million March 2016.
enterprises providing employment to 117.1 million persons
and contributing 37.5 per cent of India's GDP. It also shows that MSMEs had 9.6 per cent share of NPAs in
the priority sector for Private Sector Banks (PVBs) in 2016
The above IFC/ Mckinsey Study Report 2016 has also and 8.7 per cent in 2017. In terms of therecent report jointly
estimated the credit gap for formal and informal MSMEs prepared by global consultancy firm Earnest & Young and
worldwide being $ 3.9 trillion globally, nearly an amount of industry lobby group, FICCI, the gross non-performing
$2.1 to 2.6 trillion is in the emerging markets. Similarly, the advances (GNPAs) ratio of SCBs rose from 9.2 per cent in
report of the 4th All India Survey of MSMEs also states that September 2016 to 9.6 per cent in March 2017. The net
close to 90 per cent of MSMEs are dependent on informal non-performing advances (NNPAs) ratio increased marginally
sources. from 5.4 per cent in September 2016 to 5.5 per cent in
March 2017. This is further confirmed from the Trans Union
To elaborate, there is a total finance requirement of Rs.32.5 CiBIL data stating that the GNPA percentage in MSME
trillion in the MSME sector, which comprises Rs.26 trillion sector was around 9.8 in March 2017.
of debt demand and remaining Rs. 6.5 trillion of equity
demand. For the period ended March 2016, total According to MSMEs, there are around Rs.800 billion worth
outstanding credit of the banking system to MSME sector stressed loans in the Micro Small and Medium sector as on
stood at around Rs.11.1 trillion in 20.6 million loan accounts, March end, 2017. Traditionally, banks have been hesitant
contrast to the estimated credit need of Rs. 26 trillion and to grant loans to the sector due to several reasons such as
number of MSMEs at 51 million. their high risk factor owing to their unorganised nature; their
lack of eagerness to get themselves rated; their inconsistent
Thus, banks met just 40 percent of finance requirements. cash flow, and so on among others. Consequently, the
This is further confirmed from the compliance of minimum number of sick units in the sector is on the rise. But bank
credit to be provided to MSMEs. As per the Nayak credit outstanding per unit declined from Rs 7.49 lakhs in
Committee, appointed by the RBI, minimum credit to 2013 to Rs 6.46 lakhs 2015, indicating their hesitancy to
MSMEs should be 20 per cent of projected turnover. But in finance sick units due to high credit risk(10).
reality, it is less than 10 per cent of the projected turnover.
Almost 22 per cent of the total bank credit was blocked in
As per the recent data, credit disbursed by banks shows that these sick MSEs. Similarly, out of the of sick units which were
out of a total outstanding credit of Rs 26,041 billion as in considered for rehabilitation, just 7 percent of them came
November 2017, 82.6% of the amount was lent to large out of rehabilitation successfully, Since MSMEs suffer from
enterprises and MSMEs got only 17.4 % of total credit. Thus, adequate, timely and hassle free bank credit, the sector
MSMEs are handicapped by the dearth of credit to promote,
expand and diversify their businesses which is one of the main
reasons for non -performing assets (NPAs) in the MSME
sector.

Slippage in MSME Loan Asset Quality:
Report on Trend and Progress of Banking in India 2016-17,
Reserve Bank of India. Shares some interesting data. Credit
growth has been low for the MSME sector, from 12.5 in
March 2016 to 11.3 in March 2017, due to high NPAs. To
elaborate, NPAs in Scheduled Commercial Banks (SCBs) went
up from Rs. 708 billion in 2016 to Rs.825 billion in 2017, a
rise of 16.5 per cent. The sector-wise NPAs of banks from
till March 2017 indicates that MSMEs had 11.8 per cent (Rs

32 | 2019 | MAY | BANKING FINANCE