Lockdown Hit MSMEs With Great Impact, Their Bad Loans Hiked Rs 20,000 Crore in 2020-21; Check Details

Lockdown Hit MSMEs With Great Impact, Their Bad Loans Hiked Rs 20,000 Crore in 2020-21; Check Details

Sushmita Goswami | Mar 12, 2022 |

Lockdown Hit MSMEs With Great Impact, Their Bad Loans Hiked Rs 20,000 Crore in 2020-21; Check Details

Lockdown Hit MSMEs With Great Impact, Their Bad Loans Hiked Rs 20,000 Crore in 2020-21; Check Details

Despite a slew of loan restructuring schemes and packages announced by the Reserve Bank of India (RBI) and the government, the economy’s slowdown in the aftermath of the Covid pandemic in the last two years appears to have disproportionately impacted micro, small, and medium enterprises (MSMEs).

The RBI said in response to The Indian Express’s Right to Information (RTI) request that gross non-performing assets (NPAs) of MSMEs, or loans defaulted by these businesses, increased by Rs 20,000 crore to Rs 1,65,732 crore in September 2021 from Rs 1,45,673 crore in September 2020.

According to the RBI, bad MSMEs loans now account for 9.6% of gross advances of Rs 17.33 lakh crore, up from 8.2% in September 2020. In fact, MSME bad loans fell from Rs 1,47,260 crore (8.8 percent of advances) in September 2019 to Rs 1,47,260 crore (8.8 percent of advances) in 2021, only to rise again.

According to the RBI, public sector banks accounted for the majority of MSME NPAs, totaling Rs 1,37,087 crore. According to the RBI, PNB had MSME NPAs of Rs 25,893 crore as of September 2021, followed by State Bank of India with Rs 24,394 crore, Union Bank with Rs 22,297 crore, and Canara Bank with Rs 15,299 crore.

Bad Loans of MSMEs

According to the RBI, bad MSMEs loans now account for 9.6% of gross advances of Rs 17.33 lakh crore, up from 8.2% in September 2020.

When a loan’s principal or interest is 90 days past due, it becomes a non-performing asset.

Even after the RBI announced four loan restructuring schemes for MSMEs in January 2019, February 2020, August 2020, and May 2021, bad loans continued to rise. Under these schemes, loans from as many as 24.51 lakh MSME accounts totaling Rs 1,16,332 crore were restructured. According to the RBI’s ‘Trend and Progress of Banking’ report, loans totaling Rs 51,467 crore were restructured under the May 2021 circular issued by the RBI.

According to the RBI definition, a micro unit’s investment should not exceed Rs one crore and its turnover should not exceed Rs 5 crore, a small unit’s investment should not exceed Rs 10 crore and its turnover should not exceed Rs 50 crore, and a medium enterprise’s investment should not exceed Rs 50 crore and its turnover should not exceed Rs 250 crore.

The MSME sector was one of the hardest hit by the pandemic. Thousands of MSMEs were forced to close or become ill after the government declared a nationwide strict lockdown in March 2020 in response to the Covid pandemic. To stimulate activity, the RBI and the government implemented a number of policies, including the Emergency Credit Line Guarantee Scheme (ECLGS), which provided Rs 3 lakh crore in unsecured loans to MSMEs and businesses. The RBI also allowed bank lending to NBFCs (other than MFIs) for on-lending to agriculture, MSMEs, and housing to be classified as priority sector lending (PSL).

According to banking sources, the restructuring plans and packages did not benefit thousands of units that were already in default. This is due to the fact that, in order to be eligible for the ECLGS scheme, borrower accounts had to be less than or equal to 60 days past due as of February 29, 2020.

Credit to the MSME segment slowed (y-o-y) by the end of September 2021 compared to March 2021, according to the RBI’s Financial Stability Report. Across major bank groups, the decline was most noticeable in the sub-Rs 25 crore ticket size.

According to the ECLGS, loans totaling Rs 2.82 lakh crore were sanctioned until November 12, 2021, with Rs 2.28 lakh crore disbursed (Rs 1.94 lakh crore by commercial banks, accounting for 20.6 percent of the incremental credit during the period).

Source: The Indian Express

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