MUMBAI: The latest edition of TransUnion CIBIL- SIDBI MSME Pulse Report reveals that commercial credit which had been steadily growing over the past few years, has slowed down in the recent quarters. The total on-balance sheet commercial lending exposure in India is ₹65.0 Lakh Crores as of Sep’19. The year-on-year (YoY) commercial credit growth stood at 8.1% in the quarter ending in Sep’19, significantly lower than the annual credit growth rates of previous quarters. Credit growth measured 16.2% during Dec’17 to Dec’18, 12.6% during Mar’18 to Mar’19 and 14.8% during Jun’18 to Jun’19 period. YoY growth in Sep’19 cooled across all segments when compared with annual credit growth of other quarters. The overall non-performing assets (NPA) rate of commercial lending was at 16.8% in Sep’19, marginally lower than 17.0% in Sep’18.
On the MSME segment, YoY growth stood at 7.7%, 4.6%, and 1.9% for micro, small and medium MSMEs respectively for the period from Sep’18 to Sep’19. NPA rates in this segment have increased from 11.7% in Sep’18 to 12.2% in Sep’19. The MSME segment with aggregate credit exposure of up to ₹50 Crores, constitutes ₹18.3 Lakh Crores outstanding (~28% of commercial credit outstanding). Large corporates with aggregated credit exposure of more than ₹50 Crores, account for ₹46.7 Lakh Crores (~72% of commercial credit outstanding).
This edition of MSME Pulse covers a study on the changing profile of acquisition on MSME lending, measured using factors like vintage, CIBIL MSME Rank (CMR) distribution and the size of the borrowing entity. CMR is a credit score for MSMEs where the score output rank values range from 1 to 10. CMR predicts early signs of risk. Typically, MSMEs with CMR-1 to CMR-3 are considered lowest risk, CMR-4 to CMR-6 are considered medium risk and CMR-7 to CMR-10 are the highest risk. Further, impact of change in borrower profile is measured through the bad rate of borrowers observed within a year of sanction and renewal. The study findings show that the bad rate on MSME borrowers has increased to 3.02% in the quarter ending Sept’19 from 2.94% in the quarter ending Sept’18. Major factor contributing to this marginally higher bad rate is the increase in the share of lending towards lower vintages and high risk borrowers in Q2-FY19. Study on vintage distribution of borrowers acquired in Q2-FY19 shows that there is a significant increase in the acquisition of lower vintage borrowers (with credit history of 1-4 years). Proportion of borrowers with high bad rate peak in the lower (1-4 years) vintage bucket as compared to newly acquired (0-1 years) vintage bucket and higher vintage buckets (4+ years). Also, Proportion of borrowers acquired in highest risk segment (CMR-7 to CMR-10) has increased from 13.5% to 15.7%, contributing to the increase in bad rate.
Commenting on these findings, the Managing Director and CEO of TransUnion CIBIL, Mr. Satish Pillai, said: “We know that the industry level credit exposure trends are driven by either growth or slow-down in fresh loan disbursals, changes in utilization levels of existing limits or changes in the percentage of exits of existing limits and we are examining the contribution of each element at a sectoral level to help lenders find the risk and opportunities as well as possible solutions to drive
credit growth has slowed down in recent quarters: Commercial credit, which has been steadily growing
over the past few years, has slowed down in the past few quarters.
The total on-balance sheet commercial lending exposure in India is ₹65.0 Lakh Crores in Sep’19. The year-on-year (YoY)
commercial credit growth was at 8.1% in the quarter ending in Sep’19. However,
the growth rate for the period Dec’17 to Dec’18 was 16.2%, Mar’18 to Mar’19 was
12.6% and Jun’18 to Jun’19 was 14.8%. On a quarter-on-quarter (QoQ) comparison,
Sep’19 quarter ending exposure levels are higher than Mar’19 and Jun’19 quarter
ending exposure. YoY growth in Sep’19 has been lowest across all segments when
compared with annual credit growth of other quarters.
segment with aggregate credit exposure of up to ₹50 Crores, constitutes ₹18.3 Lakh Crores outstanding (~28% of commercial credit outstanding).
Large corporates with aggregated credit exposure of more than ₹50 Crores, account for ₹46.7 Lakh Crores (~72% of commercial credit outstanding). Micro (less than ₹1 Crore), small (₹1
Crore-₹15 Crores) and medium (₹15
Crore-₹50 Crores) segments showed a YoY growth
of 7.7%, 4.6%, 1.9%, respectively for the period Sep’18 to Sep’19.
Marginal improvement in commercial asset quality:
The overall NPA rate of commercial lending was at 16.8% in Sep’19, marginally
lower than 17.0% in Sep’18. At a time when commercial credit growth was slowing
down, growing by 8.1% over the year, gross NPA has increased by only at 6.8%
resulting in a lowering of the NPA rate by 20 basis points. The gross NPA
amount increased from ₹10.2
Lakh Crores in Sep’18 to ₹10.9
Lakh Crores in Sep’19. Crucial to note is that the NPA rate in commercial
lending was at a peak of 17.5% in Jun’18, but because of various reform
measures, it has now come down to 16.8%. In the MSME segment, NPA rates have
increased from 11.7% in Sep’18 to 12.2% in Sep’19.
NBFCs lose market share along with deterioration in asset
quality: Public Sector Banks (PSBs) who traditionally
have been the largest lender to the MSME segment, account for 60% of lending in
Micro segment. The share of PSBs and Private Banks in the small segment of
borrowers is comparable, with each having a market share of ~44%. NBFCs’ share
in the small and medium sized enterprises’ lending segment is higher compared
to the smaller and less formal MSME segment.
Over the last few years, Private Banks and NBFCs have successfully
managed to gain market share from Public Sector Banks on MSME lending. However,
in the quarter ending Jun’19, the share of NBFCs had declined for the first
time in the last two years. NBFCs have also witnessed an increase in NPA rates
in the quarter ending Sep’19.
MSME lending has increased for lower-vintage, high-risk borrowers
and more towards smaller sized MSMEs: Changing
profile of acquisition is measured using factors like vintage, CMR distribution
and size of the borrower. Further, impact of change in borrower profile is
measured through the bad rate of borrowers observed within a year of sanction
and renewal. Study reveals that the bad rate on MSME borrowers has increased
from 2.94% to 3.02% for two acquisition periods (Jul-Sep’17 and Jul-Sep’18).
Factors that contribute to marginally higher bad rate are:
in micro segment increased to 66.7%, for the acquisition period Jul-Sep’18 from
61.9% in Jul-Sep’17.
(ii) Vintage distribution of acquired borrowers
suggests that share of lending has increased towards lower-vintage borrowers
(1-4 years) in Q2-FY19.
CMR distribution of acquisition shows that proportion of borrowers acquired in
highest risk segment has increased from 13.5% to 15.7%, contributing to the
increase in bad rate.
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