Credit Disbursements to Small Businesses Surge, Doubling Demand from Pre-Pandemic Levels

Credit disbursements to small businesses have surged, doubling from pre-pandemic levels. However, banks are cautious, primarily lending to existing clients, according to a report released on Monday. This report by a credit information company highlights that the demand for credit from Micro, Small and Medium Enterprises (MSMEs) has increased significantly, with commercial credit enquiries reaching 1.6 times the pre-pandemic levels in FY22.

As of March 2022, there are 7 million active MSME borrowers, marking a 6% growth from the previous year. The report by Transunion Cibil notes that while the number of MSME borrowers has grown, lenders are concentrating on providing credit to their current customers. Expanding credit access to small businesses remains a key policy goal.

The report indicates that MSME credit disbursements have doubled across all segments compared to pre-pandemic times. This suggests that lenders are capable of meeting the rising demand for credit. On the asset quality front, non-performing assets (NPAs) stood at 12.8% as of March 31, 2022.

Since March 2021, NPAs in the MSME sector have been increasing, with the 'micro' segment being most affected. The report mentions that regulators have allowed special restructuring measures, leading to 2.7 lakh accounts with Rs 35,000 crore in outstanding credit being classified as restructured by March 2022.

The report reveals that state-owned banks have reported the highest number of restructured accounts to the commercial bureau, followed by private banks and non-bank lenders. Term loans are more frequently restructured than working capital loans. This is seen as positive since it shows MSMEs are effectively managing liquidity through Cash Credit/Overdraft (CC/OD) facilities.

Overall, the data reflects a cautious yet supportive approach by lenders towards MSMEs in the current economic climate. While there is an evident increase in credit demand and disbursement, maintaining asset quality remains a challenge for financial institutions.