Moneycontrol
Feb 26, 2016 07:28 PM IST | Source: Moneycontrol.com

Substantial portion of funding needs of SMEs is unmet: CRISIL

CRISIL estimates suggest that a substantial portion of the funding needs of SMEs is unmet, and the gap between availability of funding from institutional sources and need has an inverse relationship with size.

Substantial portion of funding needs of SMEs is unmet: CRISIL
Availability of credit remains a concern 

▪ There are nearly 50 million micro small and medium enterprises (MSMEs) in India, a chunk of them micro enterprises. Together, they account for 18% of banking credit.

▪ MSME credit growth has declined from ~14% in the last fiscal to 9% in the first nine months of the current fiscal amid mounting concern over asset quality. Yet this was twice as fast as growth in credit extended to large corporates by banks.

▪ Despite an impressive 14% CAGR growth in banking credit over the last five years, CRISIL estimates suggest that a substantial portion of the funding needs of SMEs is unmet, and the gap between availability of funding from institutional sources and need has an inverse relationship with size.

We estimate SME funding needs to be around Rs 45 trillion as of March 2015, of which only one quarter was met by institutional sources. Key reasons highlighted by lenders included higher risk perceptions and non-availability of collateral to back loans.

▪ Recognising this, the government launched the Pradhan Mantri MUDRA Yojana, which aims to provide collateral-free credit up to Rs 1 million to proprietorships and partnership firms engaged in small businesses. Loans worth Rs 900 billion have been disbursed under this scheme till date.

▪ Gross NPAs in small scale industries (SSI) lending – which weighed in at 5.8% at the end of fiscal 2014, nearly double the level seen five years ago – are expected to have crossed 6% by close of fiscal 2015.

▪ Key challenges being faced by SMEs in the current business environment include:

o Slowdown in export demand, which has impacted sectors such as leather and engineering

o Currency volatility; the depreciation in the euro has impacted purchasing power

o Sharp drop in commodity prices, which has impacted SMEs in sectors such as steel and cotton ginning

o Structural changes that have reduced the competitiveness of SMEs in some sectors (for e.g., small and mid-sized players in steel)
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