Even as the economy has largely recovered from the shocks of demonetisation and GST implementation, micro and small enterprises with borrowings of under Rs 10 lakh are yet to fully recover, a report by Transunion Cibil and Sidbi said.
"Micro, small and medium enterprises (MSMEs) with exposures from Rs 10 lakh to Rs 10 crore have recovered to pre-demonetisation levels, (but) the segment with exposure of less than Rs 10 lakh has still not recovered to that extent," the report by Transunion Cibil and Sidbi said.
It can be noted that the uptick in growth, wherein the GDP expansion accelerated to a 7.2%, had led many watchers to say that the worries of the twin reform measures are behind the economy.
The report reiterated that the situation has improved in all segments except those with borrowings less than Rs 50 lakh, where the systemic exposure has not caught up with pre-demonetisation levels.
Further, the overall exposure of the formal financial system to the MSME sector was at Rs 11.75 lakh crore of the total credit outstanding of almost Rs 100 lakh crore. Only 5 million of the over 50 million MSMEs have accessed formal finance system for credit.
The note ban and GST, have, however, upped the 'formalisation' of the economy which is seen in an increase in 'new to credit' MSMEs at 4 lakh units in the second half of 2017, as against over 2.7 lakh in the year-ago period.
On the critical factor of non-performing assets, the report said impaired assets in MSMEs have been "range bound", but the proportion of stress increases with the quantum of exposure, which means NPAs among smaller enterprises are lower as compared to the bigger ones.
The micro-enterprises having borrowings of less than Rs 1 crore had an NPA of 8.8% in December 2017 versus 9.2% in the year-ago period.
The report said while there has been a 20% jump in exposure to the under Rs 1 crore borrower segment for the year till December 2017 as against an overall 3.2% for the MSME segment as a whole, the exposure to firms borrowing under Rs 10 lakh has been a faster 31%.
"There is a structural opportunity in the MSME segment, which is both profitable as well as impactful," Sidbi's chairman and managing Mohammed Mustafa said.
While senior officials from the credit information admitted that some of the growth is due to mandatory requirements like priority sector lending, they also pointed out to a larger play by the private sector lenders who are expanding their market share.
Cibil's managing director and chief executive Satish Pillai said the smaller businesses represent a similar opportunity as the one held by retail lending over a decade ago and are bound to grow.
The state-run development finance institution and the leading credit information company have tied up to launch such reports on the sector on a quarterly basis to understand the progress and suggest policy interventions.
Mustafa said the report points out to lower coverage in states like Uttar Pradesh and Bihar and added that such enterprises need to be brought under the formal financial system fold.