Private banks and non-banking financial companies (NBFCs) have increased their market share in Micro, small and medium enterprises lending as major public sector banks face lending restrictions, according to a report by TransUnion CIBIL and SIDBI.
Lending to MSME sector rose to 34 percent for private banks in 2018 from 29 percent in 2017, and for NBFCs, it grew to 13 percent in 2018 from 10 percent in 2017, noted the report.
PSBs, which still count MSMEs as their largest lending sector, have seen a sustained and substantial decline in loan growth in the last five years. In 2018, PSBs lending growth to the sector fell to 46 percent from 55 percent in 2017.
On a consolidated basis, PSBs continue to be the single biggest segment but the gap between the PSB and the private banks has narrowed from a significant 37 percentage points in December 2013 to just about 7 pps in December 2018, according to the report.
"Going forward, we expect this trend to moderate as more PSU banks come out of the PCA framework and the impact of liquidity issues shows up in the numbers for NBFCs," said Kotak Institutional Equities.
MSME sector, which accounts for around 23 percent of total loans in India as of Q3FY19, contributes around 32 percent to India's gross value added (GVA). Overall growth in MSME lending has been solid at around 20-25 percent in recent quarters with 3QFY19 reporting 21 percent yoy growth, said Kotak.
"Rise in credit penetration, greater availability of data owing to the increased formalisation of the economy and focus towards an increasing share of non-corporate loans act as headwinds to growth going ahead," the brokerage added.
Non-performing loans (NPLs) in the corporate portfolio is the highest but showing declining trends at 19 percent of loans, the mid-corporate segment was at 17 percent of loans but declining for the past two quarters, loans to SME and micro have been stable for the past few years at 11 percent and 9 percent, respectively.
