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Private sector banks aggressively lend to MSMEs, according to RBI’s latest FSR, Auto News, ET Auto

Private sector banks aggressively lend to MSMEs, according to RBI's latest FSR
Private sector banks are grabbing market share in the MSME lending aggressively as the PSU banks remain muted. Even in the use of government guarantees for the segment, private banks stole the march over the state-run banks

The number of fresh borrowers at 67.61 lakhs for private sector banks under the government’s ECLGS scheme is three times the fresh borrowers attracted by public sector banks who managed only 22.65 lakh new borrowers. Private banks disbursed Rs 95700 crore compared to Rs 79800 crore disbursed by public sector banks, according to Reserve Bank’s latest Financial Stabilty Report.

Emergency Credit Line Guarantee Scheme (ECLGS), a Government initiative launched on May 20,2020 to handhold MSMEs to revive during the pandemic induced lockdown provides 100 per cent guarantee coverage to select borrowers. It was originally devised for MSMEs/business enterprises whose total fund-based credit outstanding across all lending institutions was up to Rs25 crore. The Scheme has undergone different iterations. The validity of ECLGS stands extended to March 31, 2023 or till guarantees for an amount of Rs 5 lakh crore are issued.

” ECLGS22 has played a key role in reviving the MSME sector” RBI said.” Loans amounting to `3.32 lakh crore were sanctioned under the ECLGS, till April 30, 2022, of which an amount of `2.54 lakh crore was disbursed of which Rs 2.36 lakh crore was disbursed by commercial banks”.

” Market share by originations value of private banks significantly increased from 33.6% in FY20 to 69.8% in FY22″ a report by credit bureau CRIF Highmark said.” Their share climbed from 26.9% in FY20 to 33.5% in FY22 by originations volume. This is attributable to increase in average ticket size of Private Banks from Rs 47.1 lakh to Rs 150.5 lakh from FY20 to FY22″.

The upsurge of domestic demand and pick up in ancillary industries and service units has increased funding requirement of this sector, according to RBI. The aggregate gross non-performing assets -GNPA- Ratio of public and private sector combined in the MSME sector has moderated from 11.3 per cent in September 2021 to 9.3 per cent in March 2022. “They, however, remain relatively high” RBI noted.

Moreover, restructuring of portfolios to the tune of Rs 46,186 crore constituting 2.5 per cent of total advances under the May 2021 scheme has the potential to create stress in the sector, the banking regulator warned.

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