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Time of India
4 days ago
- Business
- Time of India
Loans flow at a faster clip into MSMEs; asset quality up, too
Live Events (You can now subscribe to our (You can now subscribe to our Economic Times WhatsApp channel Mumbai: MSMEs, often cited by economic policymakers as crucial to last-mile job creation, raced ahead of retail last fiscal in drawing formal banking credit, which has remained rather circumspect lately in aggregate despite a cumulative one percentage-point lowering in policy rates so far this calendar year."Despite a broad deceleration in bank credit growth, the share of credit to the micro, small and medium enterprises (MSME) sector in total non-food bank credit has been growing steadily and its growth has outpaced that of other sectors during FY25," the Reserve Bank of India RBI ) noted in the latest edition of the financial stability report (FSR). In FY25, MSME loans surged 14.1%, compared to 11.7% growth in retail and 11.2% in services, central bank data showed. The share of MSME credit in total bank credit stood at 17.7%, an all-time high. Loans to this segment stood at more than ₹14.3 lakh crore at the end of May the MSME sector, credit to the micro enterprises, which formed 49% of total credit to the MSME sector, witnessed slower incremental growth in FY25 compared to small and medium enterprises. The upswing in lending came with stronger asset proportion of subprime borrowers in banks' MSME portfolios declined significantly, from 33.5% in June 2022 to just 23.3% by March 2025. Asset quality also showed improvement with the gross NPA ratio of MSME portfolio of banks falling from 4.5% in March 2024 to 3.6% at the end-March is also reflected in the significant moderation in SMA-2 (special mention accounts due beyond 60-90 days) ratio, an indicator of incipient stress which fell to 0.8% of total MSME government's credit guarantee schemes improved flow of credit to the MSME sector, especially vulnerable enterprises, with approximately ₹6.28 lakh crore guaranteed under two flagship schemes, the Credit Guarantee Fund Scheme for Micro Units (CGFMU) and the Emergency Credit Line Guarantee Scheme (ECLGS).The NPA ratio in both the schemes was relatively higher versus the sector-wide ratios, as these loans are directed towards more risky CGFMU, the NPA ratio for the banking system stood at 10.8% while it was 5.6% under the ECLGS.
Time of India
4 days ago
- Business
- Time of India
MSMEs new engine of credit growth for banks, outpace retail loans
MSMEs are emerging as the leading engine of credit growth for banks, overtaking retail lending. During FY 2024–25, MSME loans surged by 14.1%, compared to 11.7% growth in retail and 11.2% in services, RBI data showed. Share of MSME credit in total bank credit stood at 17.7%, an all-time high. Loans to this segment stood at more than Rs 14.3 lakh crore at the end of May 2025. 'Despite a broad deceleration in bank credit growth, the share of credit to the micro, small and medium enterprises (MSME) sector in total non-food bank credit has been growing steadily and its growth has outpaced that in other sectors during 2024-25,' RBI noted in the financial stability report. Within the MSME sector, credit to the micro enterprises, which formed 49% of total credit to the MSME sector, witnessed slower incremental growth in 2024-25 compared to small and medium enterprises. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Mountain Gear for Extreme Conditions Trek Kit India Learn More Undo The upswing in lending came with stronger asset quality. The proportion of subprime borrowers in banks' MSME portfolios declined significantly, from 33.5 % in June 2022 to just 23.3 % by March 2025. Asset quality also showed improvement with the gross NPA ratio of MSME portfolio of banks falling from 4.5% in March 2024 to 3.6% at the end-March 2025. Live Events This is also reflected in the significant moderation in SMA-2 (loans due beyond 60-90 days) ratio, an indicator of incipient stress which fell to 0.8% of total MSME loans. The government's credit guarantee schemes improved flow of credit to the MSME sector, especially vulnerable enterprises, with approximately Rs 6.28 lakh crore guaranteed under two flagship schemes, the Credit Guarantee Fund for Micro Units (CGFMU) and the Emergency Credit Line Guarantee Scheme (ECLGS). The NPA ratio in both schemes was relatively higher versus the sector wide ratios, as these loans are directed towards risky borrowers. Under CGFMU, the NPA ratio for the banking system stood at 10.8% while it was 5.6% under the ECLGS.
Mint
23-05-2025
- Business
- Mint
Govt eyes pandemic-era credit scheme to help firms again
New Delhi: In a move aimed at pushing manufacturing and exports, the Centre is exploring introducing an expanded version of the Emergency Credit Line Guarantee Scheme (ECLGS)–extending the pandemic-induced scheme amid the current uncertain global climate. The proposal is part of a broader effort to ease financing for manufacturers, particularly those aligned with the Atmanirbhar Bharat scheme, four people familiar with the matter told Mint. The plan includes enhancing credit flow to the collateral-free Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), that will offer bespoke loans for units approved under the production linked incentive (PLI) scheme. It will also expand cluster-based financing to support emerging manufacturing hubs. The idea is to support not only large manufacturers but also small businesses that face funding constraints in an uncertain global economic environment. 'The revival of a calibrated ECLGS-type scheme is being considered for critical sectors that are capital-intensive or export-linked but remain credit-starved," said one of the four people mentioned above. 'Simultaneously, we are looking at ways to make credit guarantees more seamless under CGTMSE and extend support to high-potential PLI beneficiaries," this person added. Also read | Regulator receives 1,000 applications from MSME drugmakers on good manufacturing practice compliance The modified ECLGS would offer lower interest rates to push manufacturing in electronics, medical devices and defence production, which are part of the PLI framework, this person added. The government's effort is to ease access to working capital and long-term financing for both large manufacturers and MSMEs, which continue to face funding constraints. Launched in May 2020 during the pandemic as part of the Atmanirbhar Bharat package, the Emergency Credit Lune Guarantee Scheme was designed to help eligible businesses meet operational liabilities and resume activities disrupted by covid-19. It ended on 31 March 2023. As of that date, nearly 12 million guarantees amounting to ₹3.65 trillion were issued under the scheme. Of this, MSMEs received 11 million guarantees totalling ₹2.41 trillion. According to a State Bank of India (SBI) report published on 23 January 2023, nearly 1.46 million MSME accounts were saved as a result of the scheme to the scheme, including restructured accounts. About 98.3% of these belonged to micro and small enterprises. 'The average loan sanctioned under the ongoing CGTMSE scheme, which was around ₹11.76 lakh, is now about ₹22 lakh, which is far from sufficient for an MSME aiming to enter the export market. Export-oriented units require a much higher credit flow, and while the CGTMSE coverage goes up to ₹5 crore, the practical ceiling hasn't moved. Banks start demanding collateral beyond ₹1 crore, which defeats the purpose," said Vinod Kumar, President, India SME Forum. 'The government should consider offering export credit to incentivize exports and support exporters, to cover the cost of finance in India which remains prohibitively high. While exporters globally get funds at 2% to 3.5%, Indian exporters often borrow at 10% or more—making us uncompetitive in global markets," Kumar said. The new measures will not follow a one-size-fits-all model but instead focus on providing credit to specific sectors that need it most. 'Right now, the economic situation requires targeted support—especially for sectors linked to exports or those under the PLI scheme, which can grow faster and deliver better returns if they get timely funding," said the second person. Read this | MSMEs call for relaxations in the new FEMA regulations for exports and imports Under the existing CGTMSE scheme, the government provides collateral-free loans of up to ₹5 crore to MSMEs, with guaranteed coverage of up to 85%. 'It is now proposed to raise the credit guarantee cover to 90% for select manufacturing sectors and to lower guarantee fees for MSMEs, particularly those aligned with key industrial and export-linked initiatives," said a third person. 'The contours of these proposals are expected to be discussed among the ministries of finance, commerce and industry, and MSMEs to build consensus," the third person added. 'The aim is to expand coverage, increase financial outlays, support manufacturing, and tap into export opportunities." Queries sent to the three ministries remained unanswered at press time. The sectors under focus for enhanced credit include toy manufacturing, textiles and garments, engineering goods, auto components, electronics and electrical equipment, marine products, gems and jewellery, leather and footwear, pharmaceuticals, and agricultural products. The focus is on increasing exports of high-demand goods and diversifying export destinations globally, instead of relying solely on traditional markets. Read this | India's motorcycle parts exports surge, imports decline as domestic industry grows stronger due to PLI scheme 'Custom loan products under discussion for PLI units include working capital support linked to production cycles, longer-term capex financing, and pre-shipment credit lines, especially in sectors like electronics, pharmaceuticals, and textiles," said the fourth person. In January this year, the government took a step to help out MSMEs by mandating a 45-day payment rule to improve cash flow and curb delayed payments to small businesses. MSMEs contribute about 45% of India's total exports, playing a key role in sectors like textiles, engineering goods, pharmaceuticals, and gems and jewellery. As of 31 January 2025, the total number of MSMEs registered on the Udyam Registration Portal and Udyam Assist Platform was nearly 59 million, while between 1 July 2020 and 31 January 2025, 71,178 units were deregistered because they had shut down. The data also indicates that as of 16 July 2024, 203 million people are employed in MSMEs. Recently, the government also doubled the guarantee cover under its Credit Guarantee Scheme for Startups (CGSS), raising the limit per borrower from ₹10 crore to ₹20 crore, a move aimed at easing credit access for startups and fueling innovation in priority sectors, as reported by Mint on 9 May. 'Enhancing credit limits under key manufacturing schemes, including the PLI, demonstrates the government's proactive approach to addressing financial constraints and accelerating industrial growth," said Shridhar Kamath, partner and engineering & industrial products industry leader at Grant Thornton Bharat. 'These initiatives can generate employment, formalize more businesses, and boost exports by breathing new life into stressed units. However, challenges such as potential credit misuse, over-leverage, and cautious lending by banks cannot be overlooked. With effective monitoring and focused financial literacy programmes, these risks can be mitigated, ensuring that enhanced credit availability translates into sustained industrial development and stronger economic self-reliance," he added. The Union Budget 2025-26 allocated ₹23,168.15 crore to micro and small enterprises, up from ₹17,306.70 crore in the revised estimate for FY25, with a focus on startups and export-oriented MSMEs. And read | Govt weighs inclusion of MSMEs in PM Internship Scheme
