NPAs in the MSME sector increased by 12.5% in Q4 FY22 from the year-ago period: Report
Posted Date: 10th August 2022
Relating to which Act: The Micro, Small and Medium Enterprises Development Act, 2006
Type: FE – News Update
Pertains to employers and employees
Relevance of this news: Karma Management Global Consulting Solutions Pvt. Ltd has been in the business of Payroll, Outsourcing, and Regulatory Compliances from its inception in 2004 and since then, has brought in a lot of efficiencies and technological upgradations with experts on its roll, to ease the hassles of Payroll Processing, Temp Staffing On-boarding, Regulatory and Payroll compliances by providing customized solutions to all its elite clients.
Karma Global renders the services of compliances to small, medium, and large-scale establishments against which it raises its bills for payments for the services rendered. Timely payments received by them help Karma Global to defray expenses, tackle its working capital and also pay salaries to its nearly 200 direct and indirect staff on its rolls. However, sometimes there are delays in receiving payments and huge critical expenses do come in and in this respect, it falls short of funds and there is no option but to take loans from the banks against substantial interest.
Incidentally, Karma Management Global Solutions Pvt. Ltd. is a member of MSME for the past many years.
This article talks about Credit and Finance for MSMEs and about The non-performing assets (NPAs) in the micro, small and medium enterprise (MSME) sector which have jumped 12.59 percent in the fourth quarter of the financial year 2021-22 to Rs 2.95 lakh crore from Rs 2.62 lakh crore during Q4 FY21, a report by SIDBI and credit bureau TransUnion CIBIL showed, indicating the Covid impact. The overall NPA rate as of March’22 stood at 12.8 percent in comparison to 12.5 percent for March’21 and 12.6 percent for March’20.
Subject: NPAs in the MSME sector increased by 12.5% in Q4 FY22 from the year-ago period: Report
For greater details, appended below is the complete news item
NPAs in the MSME sector increased by 12.5% in Q4 FY22 from the year-ago period: Report
Credit and Finance for MSMEs: According to an analysis of the restructured loans due to Covid — based on the RBI mandate in March 2021 for banks and other lenders to report accounts restructured due to the pandemic to credit bureaus — 2.7 lakh MSME accounts were tagged as restructured as of March 2022.
Till Q3 FY21, the micro-segment had a lower NPA rate than the small segment. However, the trend was flipped indicating that Covid impacted micro-segment the most, the report noted.
Credit and Finance for MSMEs: The non-performing assets (NPAs) in the micro, small and medium enterprise (MSME) sector have jumped 12.59 percent in the fourth quarter of the financial year 2021-22 to Rs 2.95 lakh crore from Rs 2.62 lakh crore during Q4 FY21, a report by SIDBI and credit bureau TransUnion CIBIL showed, indicating the Covid impact. The overall NPA rate as of March’22 stood at 12.8 percent in comparison to 12.5 percent for March’21 and 12.6 percent for March’20.
The NPAs started to climb from Rs 2.42 lakh crore during Q3 FY21 and peaked at Rs 3.10 lakh crore during Q2 FY22 before dropping slightly to Rs 3.01 lakh crore in the following quarter and further in Q4, showed MSME Pulse August 2022 report. Importantly, the drop in NPAs was visible across all segments of the sector viz., micro, small, and medium.
Till Q3 FY21, the micro-segment had a lower NPA rate than the small segment. However, the trend was flipped indicating that Covid impacted micro-segment the most, the report noted. As of Q4 FY22, the NPA rate in the small segment dropped to 10 percent (from 11 percent in Q2 FY22) while micro and medium segments had 12 percent (down from 13 percent in Q1 FY22) and 16 percent (down from 17 percent in Q2 FY22) NPA rates respectively.
With respect to lender type, NPA rates across private banks, non-banking financial companies (NBFCs), and public sector banks (PSBs) recorded an increase post around Q3 FY21 for the following two-three quarters before stabilizing or starting to decline. For instance, private banks’ NPA rate (lowest among NBFCS and PSBs) increased from 5.9 percent in Q3 FY21 to 6.8 percent in Q2 FY22 before sliding to 5.6 percent in Q4 FY22.
The NPA rate for PSBs, which has been highest in comparison to private banks and NBFCs, increased from 16.1 percent in Q3 FY21 to 21.1 percent in Q2 FY22 but remained stable at 20.8 percent as of Q4 FY22. For NBFCs too, the NPA rate peaked from 8 percent in Q2 FY21 to 10.9 percent in Q1 FY22 before dropping to 9.6 percent in Q4 FY22.
According to an analysis of the restructured loans due to Covid — based on the Reserve Bank of India) the mandate in March 2021 for banks and other lenders to report accounts restructured due to the pandemic to credit bureaus — 2.7 lakh accounts were tagged as restructured in the MSME sector (aggregate outstanding of less than Rs 50 crore) as of March 2022, the report said. This constituted around 2.3 percent of the total live accounts reported in the same time period. From a balanced perspective, it constituted Rs 0.35 lakh crore which was around 1.5 percent of MSME outstanding as of March 2022.
In its Financial Stability Report (FSR) in June this year, the RBI noted that while the gross NPA ratio of banks in the MSME sector has moderated from 11.3 percent in September 2021 to 9.3 percent in March 2022, the bad assets in the sector remain relatively high. The central bank had noted the Rs 46,186-crore restructured MSME portfolio, which constituted 2.5 percent of total advances under the May 2021 restructuring scheme, has the potential to create stress in the sector.