As much as 18 per cent of loans taken by micro, small and medium enterprises (MSME) in Mumbai, India’s commercial capital, turned into non-performing assets (NPAs) as of September 2022, mirroring the stress in the sector.
Out of Rs 162,874 crore loans taken by MSMEs in Mumbai (including suburban region), Rs 22,579 crore involving 46,978 accounts have turned into NPAs, according to data compiled by the State Level Bankers Committee (SLBC) of Maharashtra. Of this, MSME NPAs from Mumbai alone have amounted to Rs 19,324 crore, or 18 per cent of loan outstanding of Rs 109,927 crore, and Mumbai suburban Rs 3,255 crore (six per cent) of Rs 52,947 crore outstanding.
In Pune, MSME loans of Rs 3,606 crore out of total outstanding of Rs 43,988 crore have become NPAs.
However, the RBI’s Financial Stability Report says the aggregate NPA ratio in the MSME sector has moderated from 11.3 per cent in September 2021 to 9.3 per cent in March 2022.
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A loan becomes NPA when the principal or interest payment remains overdue for 90 days.
According to the RBI definition, in a micro enterprise, the investment in plant and machinery or equipment should not exceed Rs one crore and turnover is below Rs 5 crore. In a small enterprise, the investment in plant and machinery or equipment should not exceed Rs 10 crore and turnover should be below Rs 50 crore. In a medium enterprise, the investment in plant and machinery or equipment should be below Rs 50 crore and turnover below Rs 250 crore.
In Maharashtra, out of a total MSME loans of Rs 314,914 crore, Rs 34,488 crore, or 11 per cent, have become NPAs, according to SLBC data. Public sector banks accounted for Rs 30,938.6 crore MSME loans and Rs 2,986.9 crore banks. However, NPAs in the state have fallen from Rs 47,901 crore, or 19 per cent of total loan outstanding as of September 2021. The spurt in MSME loans in 2020-21 came after the government announced lockdown in the wake of the Covid pandemic in March 2020. Thousands of NPAs downed shutters and the entire sector faced cash crunch and demand slowdown.
Regarding MUDRA loans, SLBC said Rs 4,768 crore loans out of Rs 31,944 crore loan outstanding have turned bad as of September 2022. Of this, public sector banks account for Rs 3,778 crore NPAs.
The MSME sector, which was hit hard by the pandemic, is showing signs of revival: aggregate credit to the sector witnessed a strong revival during Q4 of 2021- 22, supported by significant growth in lending by private banks, the RBI’s Financial Stability Report said. The upsurge of domestic demand and pick up in ancillary industries and service units has increased the funding requirement of this sector, which provides employment to a large section of the population, FSR said.
However, restructuring of portfolios to the tune of Rs 46,186 crore constituting 2.5 per cent of total advances under the May 2021 scheme has the potential to create stress in the sector, FSB said.
The Emergency Credit Line Guarantee Scheme has played a key role in reviving the MSME sector. Loans amounting to Rs 3.32 lakh crore were sanctioned under the ECLGS till April 30, 2022, of which an amount of Rs 2.54 lakh crore was disbursed (Rs 2.36 lakh crore by banks). The drawdown under ECLGS and its extension comprised over 97 per cent of the total guarantees issued.