MSME loans to individuals is best credit
In reference to previous post some readers have raised further queries. I would like to draw the following data points from the cited CIBIL report, which should answer most of the queries raised by the readers.
(a) For the classification purpose, loans less than Rs1cr are classified as Micro lending; and loans between Rs1cr and Rs25cr are classified as Small. Loans in the range of Rs25cr and Rs100cr are considered medium and loans above Rs100cr are considered large.
(b) Out of the total business credit of ~Rs105.5trillion, Micro and Small credit (MSME) is about 23% or Rs24.7trillion. However, excluding agri and retail segment, credit to MSME is about 35.6% of the overall business exposure.
(c) During 2017-18, the average credit cost (percentage of NPAs) for MSME credit has been 1.8%. However, the latest NPA rates are between 1-1.5%. The industry average of net interest margin (NIMs) on credit to this sector range from 4-7%, giving a healthy rate of return between 2 to 5%.
(d) The share of NBFCs in new credit sanctions to the MSME segment has increased from 13% in (Sep’15) to 17% in (Sep’18). Number of NBFCs having over Rs100 Crores MSME portfolio has increased in the same period from 51 to 77 (out of total 128).
(e) Sectors, which are the most dependent on NBFC funding, include Transport & Logistics (which have 35% dependency on NBFC finance), Real Estate, Education, Healthcare, Mining & Construction.
(f) NPA rates in MSME credit has reduced from 8.7% (for Micro) and 11.4% (for SME) in September 2017 to 8.5% and 11.3% respectively in September 2018.
(g) The fastest growing sub-segment within MSME is the loans to individuals, followed by micro loans between Rs1-5mn to commercial entities. MSME loans to individuals recorded lowest percentage of NPAs (~2%); whereas the account with Rs10-25cr credit recorded the highest percentage of NPAs (~14%).
(h) For private banks the credit cost for MSME credit has been negative for past 12months, whereas for PSBs it has risen to 1highest in three year to 1.5%. NBFCs have also seen rise in NPAs from MSME segment in past 12months.
(i) The MSME credit market share is showing material shift from PSBs to private banks and NBFCs.