NEW DELHI: The micro, small and medium-sized industries—the most vulnerable to the ongoing Covid-economic stress—are facing a hard time in getting loans as banks remain risk-averse and continue cherry picking. An analysis of the latest bank credit growth data from the RBI showed MSME credit offtake saw a steep on-year contraction of 12.7 per cent in June 2020.
In fact, lending to this sector saw a de-growth of 17 per cent year-on-year, ever since the lockdown was imposed in late March. While loans to micro and small industries contracted 7.6 per cent, for medium-sized industries it shrank by 9.4 per cent, while credit growth to large industries was nearly flat at 0.4 per cent. “Credit growth continues to remain muted despite large rate cuts.
I worry that a negative credit supply shock to the MSME sector may lead to a “credit-gap”, i.e., a reduction in the supply of credit to small firms, leading to small businesses to shift towards higher cost providers of credit. This will have a bearing on growth,” said RBI MPC’s external member Chetan Ghate at the last monetary policy meeting.
The share of industry in total outstanding credit continues to be the highest at 31.8 per cent in June as compared to 33.2 per cent in June 2019. Within industry, many other sectors also saw declining credit flow during the March-June period under review. These include mining (-2.4%), edible oil (-8.6%), jute and cotton textiles (-6.5%), and fertiliser (-29.7%).
The low offtake comes despite a slew of liquidity infusion measures announced by Finance Minister Nirmala Sitharaman for the sector, including the Emergency Credit Line Guarantee Scheme (ECLGS). “If credit continues to be expensive, these firms will become less capital intensive over time,” Ghate pointed out in his observations.