Findings from the latest edition of the SIDBI - TransUnion CIBIL MSME Pulse Report indicate that in FY21, loans worth Rs 9.5 lakh crores were disbursed to MSMEs. This amount is much higher than the preceding FY20, when loans amounting to Rs 6.8 lakh crores were disbursed. Government interventions like Emergency Credit Line Guarantee Scheme (ECLGS) under the Atmanirbhar Bharat program were the major factor in driving this significant surge in credit disbursement to MSMEs. The total on-balance sheet commercial lending exposure in India stood at Rs 74.36 lakh crores in March 2021, with year over year growth rate of 0.6 per cent. MSME segment’s credit exposure stood at Rs 20.21 lakh crores as of March 2021, showing year over year growth rate of 6.6 per cent. This credit growth is observed across all the sub-segments of MSME lending.

Credit demand sees a sharp surge

Report analysis shows a significant surge in credit demand post unlocks after the first and second waves of the pandemic. Followed by the initial drop in commercial credit enquires by 76 per cent during the first wave, they recovered rapidly backed by ECLGS intervention and have since sustained close to pre-pandemic levels. March 2021 commercial credit enquiries were at 32 per cent over pre-pandemic levels; this strong momentum was impacted by the second wave, but June 2021 again showed a sharp recovery to pre-pandemic levels.

Speaking on the findings of this edition of MSME Pulse, the Managing Director and CEO of TransUnion CIBIL, Mr. Rajesh Kumar, said: “The significant surge in MSME credit demand post gradual reopening of the markets, reasserts India’s growth story. The government’s pro-growth initiatives like extending ECLGS support to the tune of Rs 4.5 lakh crores, regulatory reforms like restructuring of loans, and the swift implementation of these initiatives by banks and credit institutions using data analytics have fortified MSMEs. With these progressive policies and support, India’s MSME sector is set on a definite resurgence trajectory and this bodes well for the future strength and growth of our economy.”

MSME borrowers’ Profile on fresh loans

To understand the insights on the key shift in MSME lending, this edition of MSME Pulse covers an analysis of borrower profiles of entities getting funded post-pandemic first wave compared to entities getting funded pre-pandemic first wave. CIBIL Rank (CMR) assigns a rank to the MSME based on its credit history data on a scale of 1-10, CMR 1 being the best possible rank and CMR 10 being the riskiest rank for MSMEs.

Post-pandemic wave one, there’s been a reduction in new originations on high-risk MSME entities (CMR 8–10). This reduction is offset by an increase in originations in CMR 6–7, implying lenders' reduction in risk appetite and the difficulty in finding good MSMEs in the range of CMR 1-5 in the current uncertain environment. This trend is also echoed through an analysis done using TransUnion CIBIL’s CreditVision (CV) algorithm of missed payments, which shows that finding MSMEs with an absolutely clean track record is harder. The analysis captures the payment behavior of MSMEs against their outstanding obligations. Insights reveal that of the MSME that was given loans from January to March 2021, 29 per cent had missed more than one payment in the last three months. Of the MSMEs that were given loans from January to March 2020, 21 per cent had missed more than one payment in the preceding three months.

“The MSME credit data speaks volumes of the success of the ECLGS scheme. The scheme has played a major role in 40 per cent year over year growth in disbursements to the sector, thereby reviving the business sentiments among the MSMEs. The key highlight which signals the revival is a credit to new-to-bank (NTB) which has returned to pre-COVID levels, while credit to existing-to-bank (ETB) remains buoyant. The recent additional relief measures by Government, especially in healthcare, travel, and tourism, are expected to improve credit offtake in the MSME sector. Going forward, the lenders need to continuously monitor the health of credit portfolios, while sustaining credit growth to MSMEs”, said Mr. Sivasubramanian Ramann, Chairman and Managing Director, SIDBI.

Regular portfolio monitoring

An accelerated increase in credit balances in the recent quarters — especially in the Medium Risk and High-Risk segments make the case stronger for heightened portfolio monitoring. CreditVision (CV) algorithms like trended utilisation in credit balances for revolving credit facilities such as cash credit and overdraft loans are analysed over 12 months. These algorithms enable further disaggregation of credit bureau data, and when used in conjunction with CMR, provides a sharper risk differentiation.

Split of utilisation within the CIBIL MSME Ranks (CMR) indicates the MSME entities in the highest utilisation segment (less than 78 per cent average Utilisation) of CMR 4-5 Rank borrower segment have a bad rate of 13 per cent, while the bad rate for same CMR 4-5 segment borrower reduces to 7 per cent for utilisation level below 50 per cent. Thus, using the trended utilisation algorithm, it’s possible to identify pockets of stress within the good ranks, as well as segment better borrowers amongst medium-risk borrowers. “Backed by the ECLGS interventions, the MSME segment is well supported to drive business growth and economic resurgence. Banks and credit institutions must now focus on sustained credit growth and on monitoring the health of their portfolios astutely through CMR and CreditVision lens to be able to implement timely interventions needed for sustained growth,” concludes Rajesh.