MSME Outlook Shows Improvement As Liquidity Stress Easing: ICICI Securities Report

The general outlook for micro, small and medium enterprises (MSMEs), though not yet back to pre-covid levels, is improving with liquidity stress easing and steady asset quality, according to ICICI Securities (I-Sec) report.

The report noted that MSME segment credit exposure rose 6.6 per cent year-on-year (YoY) in FY21 to Rs 20.2-lakh crore led by disbursements of Rs 9.5-lakh crore in FY21.

The report says, a jump in MSME lending has been led by Existing to Bank (ETB) entities as credit disbursals to such MSMEs more than doubled in June 2020 and has since sustained at pre-covid levels.

Over time, credit to New-to-Bank (NTB) MSMEs is also picking up after having dropped more than 90 per cent in April 2020. In March 2021, it has already returned to higher than pre-covid levels,” I-Sec Research Analysts Kunal Shah, Renish Bhuva and Chintan Shah said in the report.

The report noted that industries that were severely impacted by the pandemic such as tourism, aviation, and hotel are now reviving.

Auto is gradually moving back to pre-covid levels and has received impetus due to EV gaining traction, technology upgradation and product line change.

Textile industry outlook is promising with a lot of restraints being put on China and various subsidies being provided to the sector. Many of the entities in this industry are either enhancing capacities or incurring fresh capex.

On the export front, the chemical industry is doing exceptionally well. Pharma industry performance has been consistently growing.

Also, incrementally, tender awards have been rising. Consequently, related industries such as cement, iron and steel, etc are also expected to do well. Most MSMEs have exhibited improved earnings trajectory in FY22, the report says.

The I-Sec analysts observed that Non-Performing Asset (NPA) rates in the MSME segment remained steady at 12.25 per cent in FY21 vs 12.6 percent in FY20. “This can be attributed to high credit supply since the introduction of ECLGS as well as restructuring benefits,” they said.

Moreover, NPA rates of private banks lending to MSMEs have been stable from September 2020 to March 2021, while NBFCs (non-banking finance companies) have seen steady growth in NPA rates during the same period.

Since the introduction of ECLGS, 1.15 crore MSMEs have been granted guarantees amounting to Rs 2.86-lakh crore. Maharashtra, Tamil Nadu and West Bengal accounted for the majority of credit offtake under ECLGS, and West Bengal, Tamil Nadu and Andhra Pradesh under the CGTMSE.