Micro loans, fall in delinquencies drove MSME lending in FY23: Report

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A surge in loans to the micro segment, aided by a parallel fall in delinquencies, drove lending to the MSME sector in FY23, according to TransUnion CIBIL-SIDBI’s MSME Pulse Report.

The micro-segment, where credit exposure is less than ₹1 crore, registered 23 per cent y-o-y growth in originations value with PSU banks leading on originations. The small segment, where credit exposure is ₹1-10 crore, grew 1 per cent. Originations value in the ‘medium’ segment, credit exposure of ₹10-50 crore, fell by 19 per cent on year.

Credit supply volumes in micro and small segments grew by 16 per cent and 1 per cent respectively, while the medium segment declined by 8 per cent.

Lenders’ commercial credit portfolio grew 15 per cent y-o-y to ₹27.7-lakh crore in the last quarter of FY23, which included new originations of ₹2.4-lah crore. Commercial credit demand, or credit inquiry volumes, rose 33 per cent whereas credit supply volumes grew 11 per cent yoy on the back of improved business activity, the report said.

During Q4FY23, delinquency rates dropped across lenders, falling to 3.0 per cent for PSU banks and 1.4 per cent for private banks. For NBFCs, the rate declined to 3.6 per cent, witnessing the largest decline from 5.0 per cent a year ago.  

New to credit (NTC) borrowers accounted for 56 per cent of new MSME loan originations and 61 per cent in the micro segment. PSU banks were the leader in the below ₹50 lakh segment whereas private banks were dominant in the ₹50 lakh to ₹1 crore segment.

“High credit demand within this micro-segment, coupled with positive lender sentiment, has propelled the growth of NTC borrowers, significantly contributing to greater financial inclusion,” the report said adding that NTC entities will be instrumental in defining the next phase of MSME credit growth.

“India has approximately 6.3 crore MSMEs of which only 2.5 crore have ever availed credit from formal sources,” said MD and CEO Rajesh Kumar. 

While the sector continues to grow at a projected compound annual growth rate (CAGR) of 2.5 per cent, the number of MSME corporate entities is expected to have touched 7.5 crore as of March 2023, of which 5.0 crore are expected to be NTC MSMEs, he added.