Data | MSMEs continue to be most stressed sector, urban cooperative banks at risk

As of August 2020, 89.6% of all loans given by Urban Cooperative Banks to the MSME sector were under moratorium

January 11, 2021 10:20 pm | Updated 10:20 pm IST

A worker seen at an engineering MSME unit at Guindy Industrial Estate in Chennai. File photo

A worker seen at an engineering MSME unit at Guindy Industrial Estate in Chennai. File photo

A higher share of loan recipients from the Micro, Small and Medium Enterprises (MSME) sector opted for the COVID-19-related moratorium in August 2020 compared to April 2020. Corporate and individual borrowers did the opposite - more opted out of the moratorium in August 2020 after initially availing of it in April 2020. This points to a relatively higher stress in the MSME sector. Urban Cooperative Banks (UCBs) will bear the brunt of this stress as more than 30% of their loans have gone to the MSME sector as of March 2020, and close to 90% of those loans were under moratorium as of August 2020.

Stressed sector

Loans under moratorium decreased in August 2020 (represented by the red bars) compared to April 2020 (represented by the blue bars) across all sectors except MSME. This points to a lingering stress in the sector even after the unlocking process commenced.

image/svg+xmlCorporate% of loan amountunder moratoriumIndividualOthersTotalMSME70503010

In August, 68% of all MSME loans were under moratorium, a marginal jump from 65% in April.

COVID-19 impact

Even among the MSME companies considered the lowest* risk, the share of missed payments for term loans jumped from 9% in March to 25% in June. In the companies considered the highest risk, the share more than tripled from 11% to 36% between March and June.

image/svg+xmlMarch 2020June 2020% of missed paymentsfor term loans403020100Medium riskHigh riskLow risk

*The risk factors are calculated based on the credit score, which points to early signs of trouble in an MSME.

Also read: Data | Why did bad loans in banks reduce despite COVID-19 and economic downturn?

Most exposed

More than 30% of UCBs’ total loans went to the MSME sector as of March 2020 - the highest among all bank types. Thus, the stress in the MSME sector will have a bigger impact in the balance sheets of UCBs.

image/svg+xmlUCBsPSBsNBFCsSFBsPVBsFBsLoans to MSMEs as a %of total advances3525155

Note: PSB: Public Sector Bank; PVB: Private Sector Bank; SCB: All Scheduled Commercial Banks; NBFC: Non-Banking Financial Company; FB: Foreign Banks; SFB: Small Finance Bank

Affected banks

As of August 2020, 89.6% of all loans given by UCBs to the MSME sector were under moratorium - the highest among all bank types. It is still not known what share of these loan accounts will turn into NPAs (loans overdue >90 days).

image/svg+xmlUCBsPSBsNBFCsSFBsPVBsFBsSCBs% of loans to MSMEunder moratorium100806040

Source: RBI, MSME Pulse

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