New report highlights marginal improvement in NPAs among MSMEs till Sept

There has been a marginal improvement in bad loans among micro-small and medium enterprises (MSME) segment in the year to September 2018, a report said Tuesday. The non-performing assets (NPAs) for both banks as well as the non-bank finance companies (NBFCs) from the 'micro' enterprises segment have improved to 8.5 per cent in September 2018 from the 8.7 per cent last year.

The report by state-run lender Sidbi and credit information company Transunion Cibil comes days after the Reserve Bank announced a special dispensation to restructure MSME loans because of heightened stress due to events such as the note ban and implementation of GST. The same for the small and medium enterprises has improved to 11.3 per cent from the earlier 11.4 per cent. Credit to the MSME segment as a whole grew 13.5 per cent, the quarterly report said.

The RBI had announced a forbearance for MSME loans up to Rs 25 crore following pressure from the government. In a January 2 comment, domestic brokerage Kotak Securities had wondered about the timing of the MSME dispensation at a time when the banks are growing the portfolios rapidly, while other analysts had termed it regressive. "We are quite surprised at the timing of the notification by the central bank. Lenders usually step back lending when the early warning indicators suggest rising trends of deterioration," the report said.

Meanwhile, the Cibil report said lenders may be erring on fresh borrower acquisition in the segment going by the stress in asset quality and need to be more attentive on this aspect. They need to be more conscious on 'loan stacking' or multiple borrowing by a single entity in a short span. "Our study has observed a direct correlation between loan stacking behaviour and the probability of default by such borrowers," Cibil's managing director and chief executive Satish Pillai said. He advised lenders to keep track and closely monitor borrowers seeking and availing loans from multiple lenders within a period of 60 days.

Defaults by loan stacking customers have increased to 4.4 per cent in September 2018 from 2.5 per cent in September 2015, it said. It laid a higher proportion of the blame on the non-bank lenders, saying nearly a fourth of the NBFCs' (non-bank finance companies) customers show loan stacking which leads the segment to contribute nearly half of the overall incidents of loan stacking. The new NPA (non-performing assets) rate of the MSME segment has been between 1-1.5 per cent per quarter and recovery rates have been between 0.4-0.8 per cent, it said.