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MSMEs recovering slowly but risks remain high

Most MSME borrowers are expected to lower their leverage levels as revenues would take relatively longer to reach pre-Covid levels.

Published: 23rd February 2021 11:02 AM  |   Last Updated: 23rd February 2021 11:02 AM   |  A+A-

Welding

For representational purposes

By Express News Service

NEW DELHI: Even as credit flow to the MSME segment continues to witness growth, aided by the Emergency Credit Line Guarantee Scheme (ECLGS) scheme, and non-performing loan (NPL) ratios have declined across all lenders, risks to MSME borrowers are rising with those in the high-risk segment witnessing higher downgrades. Experts say that this book would likely be the slowest to recover from the impact of Covid. 

According to the recently released SIDBI-MSME Pulse report, the share of downgrades has increased sharply for low-risk segments and, most prominently, for micro segment borrowers—up 36 per cent during the second quarter of FY21 over 24 per cent a year ago. 

As expected, downgrades were higher in discretionary spend sectors such as hospitality and logistics. “On the other hand, upgrades have declined by half to 31 per cent in the high-risk segment over the previous which is a cause for concern. We are still uncertain if the current loan growth of 5.7 per cent year-on-year (3.5 per cent QoQ), which is closer to the overall loan growth is likely to sustain given that the uncertainties around this segment are the highest,” Kotak Institutional Equities. 

Besides, most MSME borrowers are expected to lower their leverage levels as revenues would take relatively longer to reach pre-Covid levels.

According to the report, the MSME customer base has 20 per cent of customers who pay-down debt levels, 75 per cent who maintain balance and 5 per cent who increase their debt levels.

This ratio differs based on the rating scale with weaker MSMEs having a higher share of borrowers who build balances.

“In a post Covid environment, we expect a higher share of borrowers to either pay-down or maintain balance which should result in lower loan growth,” they added.



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