MSME loan defaults: Micro units turn NPAs under govt's ECLGS scheme
3 min read . Updated: 11 Apr 2023, 05:45 AM IST
Premium- ECLGS provided 100% guarantee coverage by the National Credit Guarantee Trustee Company (NCGTC) to banks and other lenders during the COVID-19 pandemic.
The micro-enterprise segment in the country is facing significant distress, as indicated by the fact that 17.27 lakh units, which had availed credit under the Emergency Credit Line Guarantee Scheme (ECLGS), have turned into non-performing assets (NPAs) as of March 24, 2023.
According to data from the Department of Financial Services (DFS), shared by MSME Minister Narayan Rane in the Rajya Sabha recently, the majority of beneficiaries under the Emergency Credit Line Guarantee Scheme (ECLGS), which expired on March 31, 2023.
As of February 28, a total of 1.13 crore MSME borrowers were supported with a guaranteed amount of ₹2.40 lakh crore under the Emergency Credit Line Guarantee Scheme (ECLGS). Out of these borrowers, 97.6 per cent, or 1.10 crore borrowers, were micro and small units.
As per the DFS data, shared by the Minister of State in the Ministry of Micro, Small and Medium Enterprises (MSME) Bhanu Pratap Singh Verma, 98.9 lakh guarantees involving ₹13,683 crore were issued for loans up to ₹1 lakh, while 9.34 lakh guarantees involving ₹22,086 crore were issued for loans ranging between ₹1 lakh and ₹5 lakh.
In addition, data indicate that a significant majority of guarantees issued under the ECLGS were for loan amounts up to ₹10 lakh. Specifically, 2.13 lakh guarantees were issued for loans between ₹5 lakh and ₹10 lakh, and 2.67 lakh guarantees were issued for loans between ₹10 lakh and ₹1 crore. Guarantees for loan amounts exceeding ₹1 crore were relatively fewer, with only 38,907 guarantees issued for loans over ₹1 crore.
ECLGS provided 100% guarantee coverage by the National Credit Guarantee Trustee Company (NCGTC) to banks and other lenders during the COVID-19 pandemic.
This guaranteed coverage was applicable to credit provided to MSMEs with an overall loan outstanding up to ₹50 crore, across all lenders, in any sector, and classified as regular, SMA-0 (special mention account), or SMA-1 as on February 29, 2020, or March 31, 2021. The overall scheme limit was set at ₹5 lakh crore.
As per the Reserve Bank of India's (RBI) Financial Stability Report in December of last year, a significant number of accounts under the ECLGS had turned into non-performing assets (NPAs) by September 2022.
Around 17.72 lakh accounts, which constituted approximately 16.9% of the total borrowers numbering around 1.04 crore, had slipped into the NPA category.
Notably, the majority of NPAs were from the micro-enterprise segment, accounting for 93.5% of the share, as compared to 3.2% for other business enterprises, 2.8% for small enterprises, and 0.5% for medium units.
Despite the challenges faced by MSMEs under the ECLGS, the overall gross non-performing asset (GNPA) ratio in the scheduled commercial banks (SCBs) has shown a declining trend.
As per data shared by the Minister of State (MoS) in the finance ministry, Bhagwat Karad, in a written reply to a question in the Rajya Sabha in March, the GNPA ratio for MSME loans in SCBs was 6.1% as of December 12 in the current financial year. This marks a decrease from 7.6% in FY22, 7.3% in FY21, and 8.9% in FY20.