PSBs share in credit to MSMEs fall on aggressive play by private sector

State-run banks' market share in loans to the micro, small and medium enterprises (MSMEs), a major thrust area for the government, has dipped on aggressive play by private sector banks and NBFCs, a report said Monday.

The share of the 21 public sector banks (PSBs) has fallen to 50.7 percent as of June 2018, from 55.8 percent in June 2017 and 59.4 percent in June 2016, a quarterly report by Transunion Cibil and Sidbi has said.

The overall credit to the MSME segment grew 16.1 percent for the year to June 2018, it said, adding PSBs reported a 5.5 percent growth, compared with 23.4 percent for the private sector competitors.

It can be noted that 11 PSBs are under the Reserve Bank of India's prompt corrective action (PCA) framework because of earning pressures and network concerns, which puts restrictions on lending.

The share of private sector banks has grown to 29.9 percent in June 2018, against the 28.1 percent in the same month last year, while the same for nonbank finance companies (NBFCs) has grown up to 11.3 percent from 9.6 percent, according to the report. Despite the aggressive growth, private sector banks and NBFCs fare better on asset quality as well, it said.

The PSBs' nonperforming assets (NPAs) from the MSME book increased to 15.2 percent from the year ago's 14.5 percent, while in case of private sector banks, the ratio decreased marginally to 3.9 percent from 4 percent.

There has been an increase in the turn-around times (TAT) for loan processing across all the three segments of lenders with the NBFCs being the fastest, the report said, adding that it takes an average of 26 days for an MSME to avail credit from the date of inquiry.

The NBFCs' TAT has come down to 18 days from the 24 days two years ago, while the same for PSBs is down to 31 days from 41 days earlier. Private sector banks process loans in an average of 29 days now as against 32 days two years ago.

"This finding signals a definite positive correlation between digitization and increase in efficiency of the commercial lending market," said Mohammad Mustafa, chairman, and managing director, Small Industries Development Bank of India (Sidbi).

However, the report said that the TAT has gone down for the low-ticket microloans in the wide segment, while the large value loans have not seen much improvement.

The total credit outstanding informal lending has grown to Rs 101 lakh crore as of June, according to the report, of which Rs 22.8 lakh crore is for MSMEs and Rs 42.8 lakh crore for large and mid-corporates.