- Gross NPAs in the MSME portfolio are very high for public sector banks
- Currently, stress in the sector is hidden because of various relaxations given by RBI and government
- The six-month moratorium on MSME term loans will also end in August this year
- PSBs have sanctioned Rs 70,894 crore, disbursed Rs 45,797 crore under emergency credit guarantee scheme
The country's largest bank, the State Bank of India (SBI), has written off close to Rs 14,000 crore of micro, small and medium enterprises (MSME) loans in the last five years. The MSMEs portfolio, which have one of the highest gross NPAs of over 15 per cent for the state owned bank, has been under severe stress post Demonetisation (2016) and GST ( 2017).
The bank's write offs are over 8 per cent of the total MSME loans outstanding in March 2020. These large write offs indicate that the numbers are likely to go up post the COVID-19 disruption, and slowdown in the economy. The stress in the sector is hidden currently because of various relaxations given by the regulator and the government. In fact, the correct picture of the stressed MSME loans would be known only after the regulatory reprieve ends in next 12 to 18 months.
The first big relief for the MSME sector came in 2018 when the RBI was almost forced by few government directors to create a special restructuring scheme for units with total loan exposure of Rs 25 crore. That was one of the points where the RBI and the government directors shared differences.
The RBI had come out with a MSME loan restructuring scheme for stressed units that were in default (of less than 90 days) but were standard accounts (not NPAs) as on January 1, 2019. The scheme was to end by March 2020, but the government had extended it by nine more months to December 2020 because of COVID-19 outbreak. So the stressed SMEs have time till December 2020 for restructuring their loans.
But despite the earlier restructuring scheme, gross NPAs in the MSME portfolio are very high for public sector banks. The SBI has seen its gross NPAs in the small loan segment jump from 12 per cent in March 2019 to 15 per cent in March 2020. "The restructuring scheme is more like a postponement of the problem. The MSMEs have been severely impacted because of the slowdown and are most vulnerable post COVID-19 disruption," says a consultant.
The current six-month moratorium on MSME term loans will also end in August this year. Many are expecting a large chunk of NPAs to come from the moratorium book.
In addition, there is an emergency credit guarantee cover on MSME loans, covering Rs 3 lakh crore, by way of additional working capital funding. The guarantee cover comes from the government to lend to existing MSMEs without any collateral. The loan limit is 20 per cent of the existing loan outstanding. Take for example, a MSME with Rs 25 crore loan would get additional Rs 5 crore as working capital without any collateral.
There is no obligation on payment of principal for a year. Currently, the public sectors banks have sanctioned Rs 70,894 crore and disbursed Rs 45,797 crore under the scheme. The SBI has a major share in the PSBs sanction and disbursements.