Two out of three micro, small and medium enterprises (MSMEs) are well-placed to surge through the lockdown while 30 per cent are very strongly positioned, according to TransUnion Cibil and SIDBI market pulse on MSMEs.
Structurally stronger MSMEs are likely to be least impacted during the lockdown, the report noted. By simulating elements on past events like GST implementation, IL&FS crisis and rise in NPA rates, the report has observed and concluded that entities with low leverage and higher liquidity had the lowest default rates during and post these events.
“While the impact of the lockdown may be more pronounced than that of the earlier events, the core essence of the simulation study highlights that structurally stronger MSMEs will be the least impacted’,” it said.
The findings of the study on the structural position of the MSMEs prior to the lockdown concludes that almost 2 out of 3 MSMEs are well placed to surge through this lockdown and 30 per cent are very strongly positioned.
The outbreak of the Covid-19 pandemic will impact the profitability of MSMEs due to the declining market demand and rising operating costs in the new way of working.
In such a situation, while providing moratorium is an RBI mandate, the challenge is to separate MSMEs that are making use of the moratorium to bring back their cash-flows from the MSMEs that are just delaying the default cycle.
The scenario testing study at the events of GST implementation and the IL&FS crisis suggests that structurally stronger MSMEs have always sailed through the storm
The total on-balance sheet commercial lending exposure in India stands at Rs 64.45 lakh crore as of January 2020, which was Rs 64.04 lakh crore in December 2019. Of this, the MSME segment is at Rs 17.75 lakh crore credit exposure as of January 2020.
The study noted that the MSME segment has observed lowering of credit exposure across most sub-segments of MSME lending in the last few quarters. Large corporate segment is at Rs 46.7 lakh crore credit exposure and has observed a year-on-year expansion of 6.3 per cent.
The utilisation rates of working capital limits for MSMEs have been reducing: Reducing utilisation levels of working capital limits in MSMEs has been one of the reasons for lowering of credit exposure for the segment. The drop in utilisation rates for private banks has accelerated rapidly while that of the PSBs has been milder.
The MSME credit continues to have lowest default rate in commercial lending: The default rates across all MSME segments continue to be lower than large corporate NPA rates. The NPA rates for micro segment MSMEs have remained stable. Within the micro loans segment, less than Rs 10 lakh ticket size loans have observed a reduction in default rates. However, small and medium segment NPA rates have continued to increase for the last three quarters consecutively.