Mid-Sized Firms Worst Hit By India’s Credit Slump: CIBIL
Credit to mid-sized companies grew at the slowest pace in at least a year as a risk-averse financial sector stayed away from lending to segments most vulnerable to weakness in the economy.
Credit to medium entities—having aggregate credit exposure ranging from Rs 15-50 crore—grew 1.9 percent year-on-year in the quarter ended September, the lowest since the three months ended December 2018, according to an MSME Pulse report by TransUnion CIBIL and Sidbi.
That brought down the credit growth of the entire micro, small and medium enterprises. Growth in credit to MSMEs—having aggregate credit exposure of up to Rs 50 crore—moderated to 4.6 percent year-on-year in the quarter ended September, also the slowest pace since at least the three months to December 2018, the data showed. Within this category, the entities with an aggregate credit exposure between Rs 10 lakh and Rs 50 lakh witnessed the highest credit growth over the last year at 8.4 percent.
To be sure, overall bank credit growth has been slowing since last year despite attempts to kick-start lending by ensuring surplus liquidity and infusing more capital into public sector lenders. Non-food bank credit growth, according to the Reserve Bank of India, decelerated to 7.2 percent year-on-year in November 2019 from 8.3 percent in October and 13.8 percent in the year-ago period.
Delinquencies Across Mid-Sized Firms
The asset quality across mid-sized companies, too, deteriorated during the quarter. Non-performing assets of the mid-sized companies rose to 18.1 percent in the quarter ended September from 17.1 percent in the three months to June, the report said.
Across most categories, bad loans remained elevated but did not rise further in the September 2019 quarter.
NBFCs Hold On To Market Share
Lending of non-bank financial companies as a share of overall lending to MSMEs saw a modest uptick in the quarter ended September after registering a decline for the first time in the preceding three months, according to the report.
NBFC lending made up 12.8 percent of the total lending to MSMEs in the reported quarter compared with 12.6 percent in the preceding three-month period. Public sector banks, too, saw a fall in lending market share, while private banks’ share continued to see a rise.
More Lending To High-Risk Borrowers
MSME lending to low-vintage, high-risk borrowers spiked during the second quarter of last financial year, the study said. This loosening of credit quality standards may be the reason for the elevated rates of defaults in some of these categories.
Borrowers were classified into various buckets of vintage based on credit maturity of MSMEs at the time of acquisition. Borrowers with less than two years of vintage accounted for nearly half of the total acquisitions—customer base. As such, risk of slippages may remain high into the new year.
Also, the proportion of borrowers with high bad rates—stressed and with a high propensity of turning into NPA—peaked in the lower vintage between one and four years compared to other segments, the study showed.