Concentration Conundrum: Navigating Lending Risks in MSME Portfolios

The report highlights a concentration risk in MSME lending due to borrowers holding multiple loans. Over-leverage concerns persist despite banks expanding due to economic formalization and digital lending. Non-bank lenders are gaining market share as portfolio quality shows improvement, with large ticket sizes leading growth.

Credit profiles in the micro, small, and medium enterprise (MSME) sector are showing increasing signs of risk concentration, a recent report from Crif High Mark indicates. Over half of the debt is held by borrowers with multiple loans, raising concerns for lenders regarding potential defaults.

The report reveals that 22% of MSME lending is linked to entities having 3-5 loans, and those with six or more loans make up 30% of total liabilities. Despite the risk, 83.6% of borrowers hold single loans, suggesting mixed fortunes for the sector.

State-run lenders are experiencing a decline in market share, as private and non-bank lenders thrive by embracing digital lending tools. The overall portfolio growth has decelerated to 17% while showing signs of improved quality, as fewer loans are overdue, and higher-ticket loans dominate the landscape.

(With inputs from agencies.)