Private, Non-Bank Lenders Gain Share In MSME Loans At Expense Of State-Run Peers
Private and non-bank lenders increased their share in lending to small businesses, as state-run peers pulled back on fresh loans due to a build-up of bad debt on their books.
Public sector banks, excluding State Bank of India, have already lost market share in the retail loans segment where loan growth has been strong over the last few years. Lending activity is now shifting towards small and medium sized enterprises and data suggests that private lenders are gaining ground here too.
The contribution of private banks and non-bank financial companies in loans to micro, small and medium enterprises rose to over 41 percent as on June 30 from 37.7 percent a year ago, according to a report by Transunion CIBIL and Small Industries Development Bank of India. The share of private banks rose from 28.1 percent to 29.9 percent, while NBFCs held on to 11.3 percent of the market compared to 9.6 percent a year ago.
Public sector banks saw their market share fall by nearly 5 percentage points to 50.7 percent over the twelve-month period.
The loss of market share in MSME lending is despite a pronouncement by the government that PSU banks must focus on this segment.
When the government announced Rs 2.11 lakh crore capital infusion in October 2017, it asked public sector lenders to focus on lending to small businesses to help create more jobs. But with 11 public sector banks facing lending restrictions—under the prompt corrective action framework of the banking regulator—much of the incremental lending to MSMEs has come from private sector.
Total credit to the MSME segment rose to Rs 22.8 lakh crore as on June 30. This is about 35 percent of the overall commercial credit exposure of banks and NBFCs, the report said. The MSME loans include credit to companies as well to individuals for business purposes.
The fall in market share of public sector lenders was due to a quicker pace of exits by older borrowers compared with the rate of adding new ones. This suggests that borrowers are choosing to move their banking relationships due to the lending constraints faced by some of the smaller government-owned banks.
State-run banks, according to the quarterly MSME Pulse report, lost 3 percent of their borrowers since they moved their existing loans to other lenders. About 14 percent of their borrowers left because their loans had been fully paid out. Thus, even after adding fresh borrowers in the April-June period, the net borrowers for state-owned lenders went up by only 9 percent.
In comparison, private sector banks’ total customer base rose 34 percent, while for NBFCs it jumped 43 percent.
The slowdown in credit to MSMEs has also led to a higher bad loan ratio for public sector banks in this segment. For state-owned lenders, the gross non-performing asset ratio in the MSME segment rose to 15.2 percent as of June 30, as compared with 14.4 percent in March. For private banks and NBFCs, it has remained stable at 3.9 percent and 5 percent respectively.