Commercial credit growth back to pre-pandemic levels: Report

Findings from the TransUnion CIBIL-SIDBI MSME Pulse Report’s latest edition indicate that under the government’s Emergency Credit Line Guarantee Scheme (ECLGS), commercial credit enquiries surged 58 per cent year-on-year (YoY) in June 2020 and stabilised toward the end of the year, up around 13 per cent YoY) as of December, which is similar to pre-Covid-19 growth levels.

The total on-balance-sheet commercial lending exposure in India stood at Rs 71.25 lakh crore in September 2020, clocking a growth rate of 2.1 per cent YoY. For the MSME segment, credit exposure stood at Rs 19.09 lakh crore as of September, showing YoY growth of 5.7 per cent. This credit growth is observed across all the sub-segments of MSME lending.

Report analysis indicates that MSME loan originations growth, during January and February 2020, was over 30 per cent YoY. However, this growth rate reduced significantly in March and April months consequent to the Covid-19 lockdowns.

With the launch of the ECLGS, loan originations surged in June, growing at 115 per cent over June 2019 and continued to be high and close to pre-Covid-19 levels for the remainder of the year. This strong rebound in MSME loan originations was driven by the existing-to-bank (ETB) segment, the report said.

Borrowers, who have an existing commercial credit relationship with the lender, are defined as ETB. This is primarily due to the design of the ECLGS, where the guidelines mandate lenders to extend 20 per cent of credit to existing borrowers. Consequently, the YoY growth in ETB loan originations crossed 200 per cent in the first month of the ECLGS infusion. Since then, this spike has tapered off, but ETB originations continue to stay buoyant. On the other hand, new-to-bank (NTB) originations are finding it hard to recover to pre-Covid-19 levels.

On the findings of the MSME Pulse, TransUnion CIBIL MD &CEO, Rajesh Kumar, said: “The resurgence in MSME credit growth, which is back at pre-pandemic levels, is a very promising indicator of economic recovery in our markets. Public Sector Banks (PSB) are the leading drivers of this resurgence as they have astutely wielded data analytics and credit information solutions to swiftly comply with the ECLGS guidelines and dexterously implement lending to MSMEs. Recent budget announcement have doubled the contribution to the MSME sector over last year, which shall further provide much needed financial support to the sector.”

On studying trends at a geographic level, a significant increase is observed in the growth of loan originations in the urban, semi-urban and rural regions which were subjected to less stringent and shorter lockdowns. Metro cities which experienced stricter lockdowns showed muted growth. It is observed that MSME credit disbursals in metro cities were most impacted during April and May 2020. However, these have bounced back in June 2020 after the ECLGS implementation.

The report covers an analysis based on the CIBIL Rank, which is an indicator of the credit risk associated with MSMEs. 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. In MSME Pulse report, CMR transition is monitored for borrowers over a one-year period starting September 2019 to September 2020 for rank buckets of CMR 1-3, CMR 4-5, CMR 6-7 and CMR 8-10. It is observed that 36 per cent of borrowers who were in CMR 1-3 bucket in September 2019 downgraded to lower rank buckets by September 2020 and 15 per cent of the borrowers who were CMR 4-5 in September 2019 upgraded to a higher rank bucket by September 2020.

Further study on CMR downgrades across sectors reveals that rank deterioration is relatively lower for MSMEs that are focused on consumer staples or necessity sectors like auto, infrastructure and FMCG and higher for MSMEs where consumer discretionary spends are highest – sectors like hospitality, commercial real estate and textiles.

Looking across segments, it is observed that the Small and Medium segments have been least impacted due to the economic slowdown as these have seen the lowest rise in the CMR downgrade compared to the Micro segment of MSMEs.