MSME credit demand in June back to level before pandemic, says CIBIL

High credit growth was helped by government's lending scheme and it masks asset quality pain: Agency

sme, msmes, jobs, workers, small business, economy, emplyoyment, company, firms — Diving further into geographies, the disbursal trends are similar in urban, semi-urban, and rural regions

2 min read Last Updated : Jul 29 2021 | 1:07 AM IST

Credit demand by micro, small and medium enterprises (MSMEs) increased to near pre-pandemic levels in June 2021, recovering after a drop in loan enquiries in April and May due to the second wave of Covid-19 infections, revealed the Small Industries Development Bank of India (Sidbi)-TransUnion CIBIL report.

The reading on the index of credit enquiries fell from 139 in March to 67 in April before inching up to 75 in May. It moved up to 95 in June. Lockdowns in cities in June to rein in the spread of the contagion led to a bounce-back in credit demand (measured as credit enquiries) by MSMEs.

Also helped by the government guarantee cover, lenders disbursed Rs 9.5 trillion as credit to MSMEs in the fiscal year ended March 2021 (2020-21, or FY21), up from Rs 6.8 trillion in the preceding fiscal year (2019-20, or FY20). MSME lending in FY21 was helped by the government’s Emergency Credit Line Guarantee Scheme (ECLGS), which provided 100 per cent credit guarantee to lenders.

Sivasubramanian Ramann, chairman and managing director of Sidbi, said the ECLGS has played a major role in 40 per cent growth in disbursements year-on-year to the sector. This has revived business sentiment among MSMEs. There is revival in credit to new-to-bank (NTB), which has returned to pre-Covid levels, while credit to existing-to-bank remains buoyant.

The recent additional relief measures, especially in health care, and travel and tourism, are expected to improve credit offtake in the MSME sector, he said. Credit disbursals to NTB MSMEs had dropped 90 per cent in April 2020, compared to pre-Covid levels, and have gradually returned to 5 per cent higher than pre-Covid levels in March 2021.

Diving further into geographies, the disbursal trends are similar in urban, semi-urban, and rural regions, which experienced sharper rise in disbursements in June 2020, compared with metros.