Despite the government's efforts to encourage credit lending to MSMEs by directing banks to enhance their exposure to the sector, MSMEs are still reeling under the challenge of lack of access to credit for growth. The total credit outstanding of public sector banks to the sector saw a marginal increase of 7.38 per cent from Rs 8.20 lakh crore in FY16 to Rs 8.81 lakh crore in FY19. For FY17 and FY18, the amount stood at Rs 8.28 lakh crore and Rs 8.64 lakh crore respectively, as per the RBI data.
To ease credit lending to MSMEs, the government had launched scheme — psbloansin59minutes.com in November last year to offer credit to MSMEs for in-principle approval for a term loan or working capital loan up to Rs 1 crore. The amount was extended to Rs 5 crore last month. The portal received 2,00,660 loan applications out of which 1,59,583 were accorded in-principle approval since the launch of the portal and 1,33,448 applications were sanctioned, according to Anurag Thakur, minister of state for finance who informed the Rajya Sabha last month.
Nonetheless, industry body Federation of Indian Micro and Small & Medium Enterprises (FISME) has expressed concern over low disbursals. Last week, MSME minister Nitin Gadkari had also stressed on the subject in a meeting with the finance minister Nirmala Sitharaman and India Inc's top leaders.
"MSME Minister, present in the meeting, said that while there were a lot of in-principle approvals (under the scheme) but there are hardly any disbursals. The finance minister (Nirmala Sitharaman) informed in the meeting that she had already instructed the officials to look into the issue why conversions are not taking place," Anil Bhardwaj, Secretary-General, FISME told Financial Express Online.
Despite the 59-minute loan scheme, "the disbursal rate is very poor. If you see the data of 59-minute approvals, it is not matching with the disbursal," IANS reported citing FISME's President Animesh Saxena as saying. This is because banks continue to ask for "a lot of paperwork and put a lot of conditions," he said.
Banks have been wary of lending to MSMEs due to the non-performing assets (NPA), however, as per the available data, micro and SME segment exhibit the lowest NPAs in comparison to mid and large enterprises. Since September 2016, share of NPAs in micro declined slightly from 8.6 per cent to 8.5 per cent in September 2018 while for SMEs it increased marginally from 10.6 per cent to 11.3 per cent vis-a-vis 15.2 per cent to 18.4 per cent in the mid-segment and 12.9 per cent to 20 per cent between the given period, as per a UK Sinha committee report on MSMEs submitted to RBI in June this year.