RBI Report Indicates Continued Improvement in Banks' MSME Portfolio Quality with GNPA Reduction Below 5% in September

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RBI Report Indicates Continued Improvement in Banks' MSME Portfolio Quality with GNPA Reduction Below 5% in September

The Reserve Bank of India's (RBI) latest Financial Stability Report indicates a continued enhancement in the quality of the MSME portfolio of scheduled commercial banks (SCBs) during the first half of the current financial year. Released on Thursday, the report highlights a significant decline in the MSME gross non-performing assets (GNPA), which dropped to 4.7% in September 2023, down from 6.8% in March 2023 and 7.7% in September 2022. In March 2022, the GNPA ratio was notably higher at 9.3%.

However, the report notes a slight increase in SMA-2 (special mention accounts), rising to 1.7% in September 2023 from 0.9% in March 2023. SMA-2 categorizes accounts where borrowers are unable to repay the loan amount for over 60 days and up to 90 days.

A sector-wise analysis of NPAs related to loans extended under the government’s Emergency Credit Line Guarantee Scheme (ECLGS) reveals stress in services and trade, constituting a third of the ECLGS disbursements and nearly half of the total delinquencies. Services, representing 24% of ECLGS delinquencies, and trade, with a 20% share, are notable contributors. Additionally, textiles and food processing contribute 4% and 6%, respectively. The overall GNPA of ECLGS loans increased to 6.5% in September 2023 from 5.5% in March 2023.

ECLGS, which expired on March 31, 2023, witnessed almost 90% of the total disbursements of around Rs 2.91 lakh crore from SCBs. Sectors heavily availing ECLGS loans include contact-intensive services like hotels, restaurants, travel agents, tour operators, private bus operators, car repair services, and traders.




Despite the conclusion of ECLGS, the RBI report highlights increased lending by both public and private sector banks to MSMEs in H1, underscoring the underlying growth momentum in the sector. As of September, credit growth by public sector banks was 16.4%, up from around 14% in March 2023 and approximately 5% from September 2022. Similarly, private banks exhibited a credit growth rate of 24.9% in September 2023, compared to around 13% in March and approximately 25% in September the previous year.

According to the latest RBI data on sectoral deployment, gross bank credit deployed to MSMEs under priority sector lending in October stood at Rs 23.15 lakh crore, marking a 22.8% increase from Rs 18.8 lakh crore deployed in October last year and an 11.8% rise from Rs 20.6 lakh crore in September this year.

Reserve Bank of India (RBI)
Financial Stability Report
MSME portfolio
Gross non-performing assets (GNPA)
Scheduled commercial banks (SCBs)
Emergency Credit Line Guarantee Scheme (ECLGS)
SMA-2 (special mention accounts)
Sector-wise analysis
Contact-intensive services
Loan delinquencies







 

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