Bank credit to MSME increased by around 6% in December

The Reserve Bank of India (RBI) released February 2021 Bulletin on 28.02.2021. The bulletin showed an increase in the gross bank credit deployed to the Micro, Small and Medium Enterprises (MSMEs) by 6.6% in December 2020. There is an increase in the gross bank credit provided to MSMEs from Rs.10.61 lakh crore to Rs.11.31 lakh crore during the year-ago period. 

The RBI bulletin also shows an increase in the December year-on-year (YoY) credit growth to MSMEs by 6.1% compared to YoY growth in November 2020. There is a rise in credit deployment to MSMEs in the manufacturing sector for December, November, and October after being low from April to September in the financial year. 

The November YoY growth stood at 0.5%, and October YoY growth stood at 0.7%, whereas the YoY growth for April stood at minus 2.2%, May stood at minus 3.4%, June stood at minus 3.7%, July stood at minus 1.9%, August stood at minus 1.2%, and September stood at minus 0.1% respectively. This data shows that there was very little activity by the MSMEs in months affected by the COVID-19. However, the movement of MSMEs increased post-pandemic months starting from November.

The outstanding for manufacturing MSMEs as of 18.12.2020 is Rs.3.69 lakh crore at a rise of 1.2% from Rs.3.65 lakh crore 20.12.2019. The credit growth for the service sector MSMEs remained positive in December. In November 2020, the MSME sector accounted for around 18% of the credit to the industry in toto and 5% of the total non-food credit extended by the scheduled commercial banks. 

The credit growth of the MSMEs, which was generally low-key in recent years, received a further setback due to COVID-19. However, there is a credit turnover in the MSMEs sector in recent months, mainly because of increased credit extension to the medium industries. Thus, there is an increase in MSMEs’ overall credit in November 2020 by 5.0% compared to a contraction of 0.6% last year.

The credit deployed to the medium industries is Rs.1.23 lakh crore in December as against Rs.1.07 lakh crore in December 2019. The increase in the credit deployed to the medium enterprises reflects a positive effect of the RBI and the Government of India’s several measures undertaken to contain the impact of COVID-19 for this sector. The key post-covid steps undertaken are the Emergency Credit Line Guarantee Scheme (ECLGS) and the subordinate debt scheme for supporting pandemic-hit small businesses.

The Government of India has extended support to the MSMEs by providing them with many incentives through many schemes. These schemes have helped the MSMEs resume and get back to normalcy in the post-COVID-19 situation in the country. The February Bulletin by RBI shows a positive graph in both the manufacturing and service MSMEs sectors. 

The bank credit will help the MSMEs to grow and expand their business and, in turn, bring about growth in the economy. The only downfall to this is the default in repayment of the bank credit given to MSMEs. At present, the MSMEs sector’s situation looks promising, and we can hope that the MSMEs utilise the bank credit facilities and gain success.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in