SCBs Report ₹1.25 Lakh Crore MSME NPAs Amid Rising Sector Concerns

As of March 31, 2024, scheduled commercial banks (SCBs) owed ₹28.04 lakh crore to the MSME sector. According to Minister of State for Finance Pankaj Chaudhary's recent address in the Lok Sabha, ₹1.25 lakh crore were classified as non-performing assets (NPAs), resulting in a gross NPA ratio of 4.46%, compared to 2.74% for total loans and advances.

The gross NPAs in MSME loans have consistently declined, reaching their lowest levels in six years. From a peak of ₹1.83 lakh crore in FY20, MSME NPAs decreased to ₹1.82 lakh crore in FY21, ₹1.31 lakh crore in FY23, and ₹1.25 lakh crore in FY24. This is a 14% decline from FY22, when NPAs were ₹1.54 lakh crore, according to media reports.

Despite this downward tendency, there are fears about an increase in bad loans in the MSME sector during the second half of 2024. A FICCI-IBA Bankers' Survey, conducted from January to June 2024, found that 38% of respondents—representing 22 banks and 67% of the banking industry—expect an increase in MSME NPAs. According to the poll, banks are struggling to sustain successful lending relationships with small firms. It underlined the need for lenders to reconsider MSME lending tactics, using data such as bank accounts, tax filings, and payment gateway transactions to better assess risk.

Finance Minister Nirmala Sitharaman attacked the Congress-led UPA government in May 2024 for what she called a period of corruption and inefficiency in the banking sector before 2014. She noted that banks were unwilling to give much-needed loans to small firms at the time, in contrast to the current government's emphasis on assisting MSMEs.

The MSME sector is an important pillar of the Indian economy, and while progress has been made in controlling NPAs, continued efforts will be required to address ongoing lending and credit management challenges.