Bank lending to small businesses sees positive growth in July; share in gross bank credit improves

The credit growth had slipped into negative in April this year to minus 2.2 per cent after recording the lowest growth in credit deployment at 2.5 per cent in March this year.

Credit and Finance for MSMEs: Bank lending to the micro and small enterprise (MSE) sector, which is among the priority sectors in India, has shown a positive year-on-year (YoY) growth in July amid ease in Covid related restrictions for businesses after three months of negative YoY credit growth. Credit deployment by banks to MSEs in July posted a 0.2 per cent growth at Rs 10.99 lakh crore from Rs 10.96 lakh crore in July last year, showed Reserve Bank of India’s (RBI) data on sectoral deployment of bank credit. The credit growth had slipped into negative in April this year to minus 2.2 per cent after recording the lowest growth in credit deployment at 2.5 per cent in March this year amid the second wave of the pandemic. The growth had stood at minus 3.6 per cent in May and minus 3.5 per cent in June.

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Importantly, lending growth to MSEs in the current FY so far (from Rs 11.07 lakh crore deployed in March till July), though negative, improved to minus 0.7 per cent from minus 6.4 per cent in June.

“This (lending) will certainly go up from here in comparison to the pre-pandemic era. There is also relatively less worry about the third wave of business disruption as preparations are better this time than last year. During Covid, the entire supply chain was broken as businesses including large ones were operating in a limited capacity. Until large or mid businesses start in full swing, how can MSMEs supply to them? However, now it is picking up and hence lending will improve,” Jacob Crasta, Chairman at environmental test chambers maker CM Envirosystems and Founder-director at Alliance of Indian MSMEs told Financial Express Online. Former MSME Secretary Dinesh Rai had launched the three-year-old association and is currently its Founder-Chairman.

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Growth in lending to medium enterprises as well has increased. From 64.7 per cent in May and 63.2 per cent in June, the YoY growth in July jumped to 70.9 per cent at Rs 2.09 lakh crore from Rs 1.22 lakh crore during the year-ago period. The July growth is highest in the current financial year after 70.8 per cent growth in April this year. The credit deployment growth in medium enterprises in the current financial year till July also posted a positive growth of 1.8 per cent in comparison to negative 8.7 per cent in June.

The share of MSEs in India’s gross bank credit in July also continued to post growth. The share, which had witnessed a five-month decline before it improved to 9.55 per cent in June, grew further to 10.07 per cent in July. The gross bank credit in July stood at Rs 109.10 lakh crore, up from Rs 108.41 lakh crore in June. From 12.11 per cent in December 2020, MSEs’ share in gross bank credit had contracted to 12.09 per cent in January 2021, 11.8 per cent in February, 11.3 per cent in March, 9.7 per cent in April, and 9.48 per cent in May. 

According to the latest data on the government’s flagship ECLGS scheme launched last year to support Covid-hit MSMEs and other businesses, 60.6 per cent of the Rs 4.5 lakh crore loan limit was sanctioned. As of July 2, 2021, Rs 2.73 lakh crore in loans was sanctioned, of which Rs 2.14 lakh crore was disbursed by partner banks and NBFCs. Moreover, guarantees were issued for loans granted to around 1.09 crore MSMEs, MSME Minister Narayan Tatu Rane had said in a written reply to a question in the Rajya Sabha in July.