Credit and financing for MSMEs: Year-on-year growth in the deployment of gross bank credit to micro and small enterprises (MSEs) stood at 10.6% in March, down from 8.4% in February and 4.8% in January , with the post-Covid business recovery continuing among small businesses. businesses. According to the latest data on sectoral deployment of gross bank credit by the Reserve Bank of India (RBI), banks deployed Rs 13.12 lakh crore to MSEs in March 2022 compared to Rs 11.86 lakh crore disbursed in March 2021. The bank credit to MSEs has been positive since December after three consecutive months (September-November) of contraction.
Loans extended to medium-sized businesses also continued to post double-digit growth of 36.9%. Rs 3.04 lakh crore was disbursed by banks at medium units in March, compared to Rs 2.22 lakh crore in March 2021.
Overall credit deployed in the MSME sector in March was also higher at Rs 16.17 lakh crore compared to Rs 16.10 lakh crore deployed the previous February. In terms of gross bank credit share, March disbursements to MSMEs accounted for 13.6% of gross credit of Rs 118.90 lakh crore deployed by banks, down slightly from 13.8% in February and 13, 11% in January.
Nonetheless, amid gradually improving demand and rapid economic growth, it is estimated that the MSME sector will witness an increase of 7-9% in credit in FY22 to Rs 18 lakh crore from at Rs 17 lakh crore in FY21 and Rs 16 lakh crore in pre-Covid FY20, a study by Assocham and Crisil-MSMEs Back to the Grind had said in April. Accounting growth for banks is expected to be higher, at 8-10%, compared to growth of 5-7% for non-banking financial corporations (NBFCs). Banks had an estimated 78% share of the MSME loan portfolio in FY22, while NBFCs had only a 22% share.
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It is important to note that to further assist MSMEs in restoring credit, the Parliamentary Standing Committee on Industry, in its March report, recommended that the government extend the loan repayment period under the guarantee scheme. Emergency Line of Credit (ECLGS) for MSMEs for up to seven to eight years. Currently, the repayment period of three to four years, including the moratorium period under the scheme, is a very short period for MSMEs struggling to survive the impact of the second wave of Covid, the committee.
The parliamentary panel had also called for a moratorium of at least two years on the principal amount. Finance Minister Nirmala Sitharaman, in her budget speech this year, had extended the ECLGS scheme until March 2023, along with an increase in guarantee coverage from Rs 50,000 to Rs 5 lakh crore.