PSUs
MSME sector funding: Banks not fulfilling Government mandate, risking GDP turnaround
By By MK Shukla & Rakesh Ranjan- 05 Jul 2021
1570New Delhi (05.07.2021): Fears on FY22 GDP growth, already slashed to 8.3% by the World Bank from the earlier forecast of 10.1%, are sustained by the sluggish credit growth in the MSME sector which contributes more than/or equal to 30% of GDP growth. The irony is that even after the government loosened its purse strings between May 2020 and May 2021 to provide a credit-based stimulus to the MSME sector, the latter could not avail of much of the package as the banks, to avoid defaults and adding to the NPAs, chose the easy path of lending mostly collateralized credits. Clearly, it's a case of a clash of interests between the government and the banks. And this clash has put GDP growth and employment generation at tremendous risk. Despite RBI offering tons of cheap money to banks through unconventional measures, the central bank data revealed that, while banks added ₹11.9-lakh crore in non-food credit between May 2019 and May 2021, only six percent, or ₹69,760 crores, of the incremental bank credit flowed to industry. Readers may recall that to alleviate hardships faced by MSMEs, the Centre had announced an Emergency Credit Line Guarantee Scheme that set aside ₹4.5-lakh crores for them. But in the two-year period, MSMEs in manufacturing and services (priority sector loans) could secure only ₹56,665 crores out of the incremental bank loans of ₹11.9-lakh crore. Further, MSMEs’ share in total bank credit - of ₹107 lakh crores - totaled ₹12.1 lakh crores in May 2021, not much changed from ₹11.5-lakh crores as of May 2019. Further, MSMEs witnessed their total outstanding credit down ₹14,627 crores, but medium-sized firms accumulated a ₹71,292-crore increase. Naturally, micro-enterprises are aggrieved and informed the government that the stimulus, means for them, was diverted by the banks to suit their convenience. Large enterprises also saw a minimal expansion in credit. This is, though, attributed to the companies deleveraging their balance sheets by availing of low-interest credit. Interestingly, individual borrowers received 46% or ₹5.5-lakh crores of the incremental credit. Data indicate that banks favored individuals offering collaterals. Of the ₹5.5-lakh-crore-increase, housing loans aggregated ₹2.8-lakh crore, vehicle loans ₹38,275 crores, and jewelry loans ₹37,181 crores, almost trebling in two years. Further, while education loans offtake slowed down, retail personal loans at high interests jumped by ₹1.7 lakh crores.
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MSME sector funding: Banks not fulfilling Government mandate, risking GDP turnaround
By By MK Shukla & Rakesh Ranjan - 2021-07-05 13:00:00
New Delhi (05.07.2021): Fears on FY22 GDP growth, already slashed to 8.3% by the World Bank from the earlier forecast of 10.1%, are sustained by the sluggish credit growth in the MSME sector which contributes more than/or equal to 30% of GDP growth.
The irony is that even after the government loosened its purse strings between May 2020 and May 2021 to provide a credit-based stimulus to the MSME sector, the latter could not avail of much of the package as the banks, to avoid defaults and adding to the NPAs, chose the easy path of lending mostly collateralized credits.
Clearly, it's a case of a clash of interests between the government and the banks. And this clash has put GDP growth and employment generation at tremendous risk.
Despite RBI offering tons of cheap money to banks through unconventional measures, the central bank data revealed that, while banks added ₹11.9-lakh crore in non-food credit between May 2019 and May 2021, only six percent, or ₹69,760 crores, of the incremental bank credit flowed to industry.
Readers may recall that to alleviate hardships faced by MSMEs, the Centre had announced an Emergency Credit Line Guarantee Scheme that set aside ₹4.5-lakh crores for them.
But in the two-year period, MSMEs in manufacturing and services (priority sector loans) could secure only ₹56,665 crores out of the incremental bank loans of ₹11.9-lakh crore. Further, MSMEs’ share in total bank credit - of ₹107 lakh crores - totaled ₹12.1 lakh crores in May 2021, not much changed from ₹11.5-lakh crores as of May 2019.
Further, MSMEs witnessed their total outstanding credit down ₹14,627 crores, but medium-sized firms accumulated a ₹71,292-crore increase.
Naturally, micro-enterprises are aggrieved and informed the government that the stimulus, means for them, was diverted by the banks to suit their convenience.
Large enterprises also saw a minimal expansion in credit. This is, though, attributed to the companies deleveraging their balance sheets by availing of low-interest credit.
Interestingly, individual borrowers received 46% or ₹5.5-lakh crores of the incremental credit. Data indicate that banks favored individuals offering collaterals. Of the ₹5.5-lakh-crore-increase, housing loans aggregated ₹2.8-lakh crore, vehicle loans ₹38,275 crores, and jewelry loans ₹37,181 crores, almost trebling in two years.
Further, while education loans offtake slowed down, retail personal loans at high interests jumped by ₹1.7 lakh crores.
