A weaver uses a handloom to make a silk sari in Varanasi, Gujarat. (Photograph: Dhiraj Singh/Bloomberg)

Concerns On Credit Supply To Small Businesses A Myth, Says SBI Report

Economists at the country's largest lender the State Bank of India on Tuesday termed concerns on credit supply to small businesses as a "myth" and said the sector has had a "stupendous" loan growth since the Goods and Service Tax.

The commentary comes amid concerns on the state of small businesses sector post-GST, which also led the Reserve Bank of India board to decide on a special dispensation on asset quality.

"The myth is...regarding the credit growth to Micro and Small Enterprises," its economists said in a note.

Calling the credit growth to the sector as “quite stupendous”, the note said post the July 2017 implementation of the GST, incremental credit to MSEs under priority sector lending has increased by five times to Rs 1.23 lakh crore compared to Rs 25,700 crore during the corresponding period pre-GST.

The deceleration in credit in the pre-GST period was partly due to overall slowdown in economic activity, rising non-performing assets and reclassification of food and agro-processing units from MSME category to agriculture sector, it said.

The surge in loans post-GST shows a significant amount of MSMEs have been able to tap banks for credit, it justified.

At its November meet, the RBI central board decided to ask banks for some forbearance for classifying advances to MSME. In the lead up to the meet, there were reports saying along with asset classification, there are concerns on credit flow to the sector, especially in light of 11 banks being under the prompt corrective action framework.

Liquidity troubles faced by non-bank lenders, one of the largest credit suppliers to the sector, was also a worrying factor. The SBI report pegged the share of credit from NBFCs at 10 percent of the overall MSME pie.

Commenting on the overall 15 percent credit growth achieved by the industry in October, it said there has been a lot of "hullabaloo" about the year-on-year growth being at a five-year high, but pointed out that it has actually declined when compared with the preceding month.

"The good thing is that decline in incremental credit growth is seasonal and may not still be a matter of concern," it said, adding that there was a decline in credit growth for the same period in financial year 2018 and financial year 2017.

It added that the credit growth has to be seen in context of a weak GDP growth in the second quarter this fiscal, slowdown in auto sales and retail loans for the month.