Banks Extend INR 23.15 Lakh Crore Credit To MSMEs In October, Showing Strong 22.8% YoY Growth

In the latest sectoral deployment data released by the Reserve Bank of India (RBI), scheduled commercial banks extended a gross bank credit of INR 23.15 lakh crore to micro, small, and medium enterprises (MSMEs) under priority sector lending in October. The figure reflects an increase of 22.8 per cent compared to the INR 18.8 lakh crore deployed in the corresponding month last year and a further 11.8 per cent growth from the INR 20.6 lakh crore deployed in September this year.

The October deployment constituted 15 per cent of the banks' total non-food credit of INR 154 lakh crore during the month, compared to 14.6 per cent of the INR 128 lakh crore non-food credit in October of the previous year. Notably, credit to micro and small enterprises (MSEs) experienced robust growth, surging by 24.2 per cent to reach INR 18.53 lakh crore, up from INR 14.92 lakh crore in October last year. Meanwhile, credit to medium enterprises also saw a noteworthy increase of 17.3 per cent, reaching INR 4.61 lakh crore compared to INR 3.93 lakh crore in October the previous year.

MSMEs Seek Proper Execution Of Schemes

Despite the apparent increase in credit to MSMEs, a survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI) revealed that the implementation of collateral-free credit remains a challenge. The survey, which involved 610 respondents from small and medium enterprises (SMEs), highlighted that banks tend to provide loans only when collateral is offered by SMEs, despite the existence of collateral-free credit on paper.

Moreover, the survey pointed out challenges in the execution and accessibility of various government schemes introduced for MSMEs post-Covid. Specifically, the Credit Guarantee Fund Trust for Micro and Small Enterprises Scheme (CGTMSE scheme), designed to offer collateral-free loans up to INR 5 crore with government assurance, has not been effectively accessed by SMEs. The survey emphasized that banks exhibit hesitancy in providing financing to SMEs.

Decrease in Gross NPAs

Addressing the asset quality aspect, the data shared by Bhanu Pratap Singh Verma, Minister of State in the MSME Ministry, revealed a positive trend. Gross non-performing assets (GNPAs) in MSME loans by scheduled commercial banks decreased by 14.3 per cent to INR 1.31 lakh crore for FY23, down from INR 1.54 lakh crore during FY22. This information was conveyed in a written reply to a question in the Rajya Sabha in July of the current year.

Conclusion

As the financial landscape evolves, the recent surge in credit deployment to MSMEs signifies a positive trajectory, yet challenges persist in realizing the promise of collateral-free credit. Looking ahead, seamless execution of government schemes and increased accessibility will be pivotal for the sustained growth of the MSME sector. With a declining trend in Gross NPAs, the sector anticipates continued resilience and adaptability.