Credit and Finance for SMEs: The ongoing stress on micro, small and medium enterprises (SMEs) in the country’s financial capital Mumbai has resulted in 18% of loans taken by the sector becoming non-performing assets (NPAs) by September 2022, according to The Indian Express. report on Tuesday.
According to data compiled by the Maharashtra State Level Bankers Board (SLBC), 46,978 accounts of Rs 22,579 crore taken in Mumbai (including the suburban region) out of a total of Rs 22,579 crore EMPE loans of Rs 162,874 crore have become NPAs.
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The central bank defines an NPA as any advance or loan overdue for more than 90 days. “A credit facility, the interest and/or principal of which has remained ‘overdue’ for a specified period of time,” the Reserve Bank of India said in its circular.
Of the total loan amount, NPAs in Mumbai stood at Rs 19,324 crore, which is 18 percent of the total loan amount of Rs 1,09,927 crore. In the Mumbai Suburban area, a loan of Rs 3,255 crore or six percent of the 52,947 loan amount disbursed remained outstanding.
SLBC data revealed that out of 3,14,914 crore EMPE loans in Maharashtra, 34,488 crore, or 11 per cent, have become NPAs. Public sector banks had SME loans of 30,938.6 million and banks of 2,986.9 million.
However, the state’s NPAs have come down from Rs 47,901 crore, 19 percent of the total outstanding loan as of September 2021.
Also, in Pune, 3,606 crore SME loans out of the total outstanding amount of 43,988 crore became NPAs.
Demand for SME loans increased after the government announced a lockdown in March 2020 due to the Covid pandemic, which resulted in tighter cash and reduced demand.
Under the MUDRA loan scheme, as of September 2022, 4,768 crore loans out of 31,944 crore went bad. Of this, public sector banks account for NPAs of Rs 3,778 crore, according to SLBC data.
Importantly, while the Reserve Bank of India in its latest Financial Stability Report (FSR) stated in June this year that the gross NPA ratio of banks in the SME sector declined from 11.3 percent in September 2021 to 9.3 percent in March 2022, bad assets in the sector remain relatively high. According to the report, the 46.186 billion restructured SME portfolio, which constituted 2.5 percent of the total advances in the May 2021 restructuring scheme, has the potential to create stress in the sector.
The FSR report also noted that the pandemic-hit SME sector is showing signs of recovery, with private bank lending increasing in the fourth quarter (January-March) of the latest financial year 2021-22.
Domestic demand and the rise of ancillary industries and service units have increased the sector’s appetite for funding, providing employment to a large segment of the population, the report added.
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Meanwhile, the government’s flagship credit scheme, the Emergency Credit Line Guarantee Scheme (ECLGS) has played a key role in reviving the MSME sector. Under the scheme, loans worth Rs 3.32 crore were sanctioned till April 30, 2022, of which Rs 2.54 crore were disbursed (2.36 crore by banks).