MSME Credit Health Index 2020
TU CIBIL – MoSPI MSME Credit Health Index to help measure and benchmark the growth and strength of India’s MSME sector
MUMBAI: In order to provide a reliable measure and benchmark of the growth and strength of the MSME sector in India, TransUnion CIBIL in partnership with Ministry of Statistics & Programme Implementation (MoSPI) has launched MSME Credit Health Index. The MSME Credit Health Index will provide government, policymakers, lenders and MSME market participants, a unique and reliable numeric indicator for measuring and benchmarking the health of the MSME sector. This measurement model, based on comprehensive data and intensive analytics is set to facilitate better MSME credit risk management, formulation of strategies and policies to support the revival and resurgence of the MSME sector and the economy.
Enabling the MSME ecosystem to transact with confidence
The MSME Credit Health Index is built using credit data submitted by lending institutions to TransUnion CIBIL. The index measures the credit health of India’s MSME industry on two parameters: Growth and Strength. The growth is measured by plotting an increase in exposure value (outstanding balances) over time and strength is measured by a decrease/ increase in credit risk in terms of non-performing assets (NPA). Both the growth and strength indices follow the principle of higher the better – i.e. an increasing Growth Index indicates an improvement in credit growth; and an increasing Strength Index implies better asset quality and therefore denotes an improvement in the structural strength of the sector.
Speaking at the launch of this index, Dr. Kshatrapati Shivaji, Secretary, Ministry of Statistics & Programme Implementation (MoSPI) said, “The MSME sector comprises of over six crore enterprises, contributes nearly 29% of India’s Gross Domestic Product (GDP) and provides employment to over 11 crore workers. Being a vital engine for growth, it is important to continuously monitor and measure the strength, growth, and progress of the MSMEs, so that policies can be aligned and timely interventions are taken. MoSPI is happy to partner with TransUnion CIBIL to introduce the MSME Credit Health Index as a new and alternate data source for use in policymaking for the MSME sector.”
The first version of the MSME Credit Health Index is based on data from March 2018 to June 2020. Explaining the insights as indicated in the MSME Credit Health Index, the MD, and CEO of TransUnion CIBIL- Mr. Rajesh Kumar said, “TransUnion CIBIL is committed to providing insights and solutions to support the economic revival of the country and with the launch of the MSME Credit Health Index we further reassert our commitment by introducing a reliable, objective and sharp indicator of the strength, growth, and stability of the MSME sector. The Index is available at the national level and granularly across MSME segments, lender categories, and geographies. The objective of the Index is to support MSMEs, lenders, and policymakers with an efficient tool to monitor and benchmark the movement in the micro-ecosystems of the MSME sector. The ongoing monitoring of the index will provide insights for aligning strategies and policies towards efficient implementation of funds and resources for the sustained development of the MSME sector and thereby the socio-economic growth.”
The overall analysis of the Growth Index reflects muted growth in June 2020 owing to limited credit activity consequent to the containment measures implemented by the Government to curb the spread of the COVID-19 pandemic.
The MSME sector has seen an increased level of NPAs in the last two years consequent to a slower rate of economic growth. Cash flows of MSMEs have been impacted over a period of time thereby limiting their ability to service debts. This has resulted in the Strength Index reflecting a decreasing trend. The improvements seen in March are due to improved recovery and collection efforts by lenders before the close of the financial year.
Digital lending innovation directly proportional to growth
MSME Size-based Index Map
Analysis of MSME Credit Health Index at a sub-segment level shows that the momentum of growth, when compared to the benchmark for each sub-segment of MSME, is highest for the Micro segment (exposure less than INR 1 Cr). “There is empirical evidence now which proves that digitalization of lending processes is directly proportional to growth as seen in the Micro segment, which witnessed large scale digital lending innovation in the last two years and significant growth consequently. Lenders across the industry have adopted an analytically driven underwriting approach supported by alternate data which has propelled its growth,” emphasizes Rajesh.
A look at the Strength Index by MSME size reveals that the Index values across all segments have reached the same level in June 2020, while following a different trajectory in the last two years. In the pre-COVID-19 quarter of December 2019, the strength was the lowest for the Medium segment. However, a much-increased focus on recoveries before the end of the financial year resulted in the strength of the Medium segment improving significantly for the March 2020 quarter.
Lender Category-wise Index Map
At a lender category level, NBFCs and Private Banks have shown a higher growth momentum. Private Banks have contributed to over 50% of incremental credit to the MSME sector over the last two years. NBFCs were the fastest-growing category in 2018. The liquidity crisis towards the end of 2018 limited the ability of NBFCs to extend credit. As a consequence, NBFC credit growth slowed down in 2019. Public Sector Banks have seen muted credit growth in the last two years.
The Strength Index by the lender category reflects a relatively faster decline for Private Banks driven by few players experiencing higher stress in their portfolio compared to others. However, it is also pertinent to note that the NPA rates of Private Banks, despite showing an accelerated increase, continue to be at a much lower level compared to PSU banks and NBFCs.
State-wise Index Map
Analyzing the index at a state level indicates that among states with substantial MSME portfolio (more than 4% share in total MSME exposure) – Tamil Nadu, Uttar Pradesh, and Rajasthan have shown higher growth momentum. The state of Tamil Nadu also reflects relatively better strength.
“At TransUnion CIBIL we are committed to supporting the economic revival of our country and have undertaken several initiatives such as the launch of MSME Saksham platform in association with SIDBI quarterly MSME Pulse Insight reports, as well as the industry-level analysis on Emergency Credit Line Guarantee Scheme (ECLGS) package to support the credit sector to swiftly and securely grant loans under this scheme. With the launch of the MSME Credit Health Index we further reassert our commitment by introducing a reliable and efficient measurement model of the health, strength, and growth of the MSME sector,” concluded Rajesh.
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