Banks continue to lend to micro, small and medium enterprises (MSMEs) despite a high level of non-performing assets (NPAs) recorded in this sector, as per a report in Financial Express.
Bad loan in the MSMEs rose to 13.08 per cent for public sector banks (PSBs) at the end of March 2018, compared with 12.56 per cent in March 2017, according to data from the Reserve Bank of India (RBI). The outstanding loans to medium industries rose 3.3 per cent year-on-year to Rs 1.05 lakh crore.
Loans to micro and small industries stood at Rs 3.64 lakh crore as on September 28, 2018.
In the private sector banks, the NPAs from the MSMEs rose to 2.61 percent at the end of March 2018 from 2.38 per cent a year ago. Interestingly, for foreign banks, the share of NPAs in this portfolio fell to 2.5 per cent at the end of FY18 from 3.32 per cent at the end of FY17.
The NPAs of the MSME sector was higher at banks under the prompt corrective action (PCA) framework. For these lenders, NPAs arising from the MSME portfolio stood at 15.74 per cent at the end of March 2018, about 150 basis points higher than the level a year before that, according to data reviewed by the paper.
The government has been concerned about the restricted flow of credit to the MSME sector because 11 state-owned lenders are operating under the PCA framework have strict lending norms.
On November 2, Prime Minister Narendra Modi launched the MSME Support and Outreach programme under which the MSMEs can avail loans up to Rs 1 crore in less than an hour along with subsidised cost of capital.
Earlier, RBI had eased norms for recognition of NPAs in the MSME segment and had extended the benefit of 180-days past due (dpd)-based classification of NPAs to all MSMEs.
Some banks have admitted that they are facing stress in their SME portfolio. Kotak Mahindra Bank saw an increase in provisions against its portfolio of loans to small enterprises in Q2FY19.
