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Last Updated : Jan 17, 2018 04:49 PM IST | Source:

Budget 2018: Need more efforts to ease SME financing

The government also needs to improve the infrastructure required to lower their cost of doing business.


Overall SME lending market grew at 13% CAGR in the five fiscals through 2017, to an estimated Rs 14 lakh crore, with non-banking finance companies (NBFCs) recording a four-fold increase in their credit book. The cumulative market share of non-banks in micro, small and medium enterprise (MSME) financing rose to 18% in fiscal 2017, from 8% five years ago.

Asset quality in the MSME segment worsened due to demand-side pressures and liquidity issues after the implementation of demonetisation in November 2016. In fiscal 2017, gross non-performing assets (GNPAs) increased by 70-100 bps across lenders, led by public sector banks.

Over fiscals 2018 and 2019, we expect overall SME lending market to grow at 11% CAGR. NBFCs are likely  to outperform banks with sharper focus on small-ticket loans, adoption of technology and data analytics, and focus on small towns and cities.

In the medium-to-long term, GST is expected to have a positive impact on organised MSME industry, given benefits such as availability of input tax credit, efficiency in logistics and capturing market share from unorganised players.

Pradhan Mantri MUDRA Yojana – progress so far

The Pradhan Mantri MUDRA Yojana (PMMY), launched in Budget 2016, aims to provide collateral-free credit of up to Rs 1 million to small business proprietors and partnership firms. In fiscal 2017, loans worth Rs 1.75 trillion were disbursed under PMMY, against a target of Rs 1.80 trillion, which works out to 97% of the target.

Budget expectations

The government needs to focus more on increasing the availability of finance for SMEs, and also improve the infrastructure required to lower their cost of doing business.

First Published on Jan 17, 2018 04:49 pm
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