A recent report by Crisil points out how SMEs are hit when the economy moves into a low-growth phase.
Amid delays in the announcement of an economic package being readied by the Centre, Finance Minister Nirmala Sitharaman Thursday said the “economy is poised to recover” as public sector banks (PSBs) have stepped up loan sanctions in March and April, and these funds will be disbursed soon after the lockdown is lifted. She said PSBs have proactively provided three-month loan moratorium facility to over 3.2 crore accounts after the scheme was announced by the RBI.
A total of Rs 5.66 lakh crore of loans were sanctioned during March-April 2020 to MSMEs, retail, corporate and agriculture sectors, while another over Rs 1 lakh crore of funds have been sanctioned to non-banking financial companies (NBFCs) and housing finance companies (HFCs). “During March-April 2020, PSBs sanctioned loans worth Rs 5.66 lakh crore for more than 41.81 lakh accounts. These borrowers are from MSME, Retail, Agriculture & Corporate sectors, waiting for disbursal soon after #lockdown lifts. Economy poised to recover,” the FM said in a series of tweets.
PSBs are attending to the funding needs of micro, small and medium enterprises (MSMEs), she added. The economic shutdown has hit MSMEs particularly hard as they do not have large reserves that bluechip companies have. “For MSMEs and others, pre-approved emergency credit lines & working capital enhancements being prioritised by PSBs. More than 27 lakh customers contacted from March 20 and 2.37 lakh cases sanctioned loans worth Rs. 26,500 cr. A work in progress,” Sitharaman’s said on her official Twitter handle.
A recent report by Crisil points out how SMEs are hit when the economy moves into a low-growth phase. It says that when the economy moves from normal to low growth rate, current asset days (how quickly a company is able to convert its current assets into cash) for large companies rises from 139 days to 143 days, for micro and small companies it jumps from 189 days to 220 days. This affects their funding ability, pushing them to seek higher working capital loans from banks.
Credit information firm TransUnion CIBIL said loans worth Rs 2,32,000 crore of MSMEs are at a higher risk of becoming non-performing assets. MSMEs operating across the value chain — including cycle parts, auto parts, textiles products, toys, hand tools — are facing stress due to depleting internal reserves and low visibility of demand for next six months at least, according to industry sources.
Apart from MSMEs, NBFCs are other companies facing the stress, as their cost of funding has gone up sharply especially for lower rated companies. Sitharaman said that state-owned banks have sanctioned funds to NBFCs. “Sustained credit flow to #NBFCs & HFCs in #COVID-19. PSBs sanctioned loans worth Rs 77,383 crore between Mar 1-May 4. Inclusive of TLTRO funds, extended total financing of Rs 1.08 lakh crore, ensuring business stability & continuity going forward,” she said.
The RBI last month announced targeted long term repo operations (TLTRO) scheme through which banks can borrowing funds from RBI for on lending. The scheme mandates that within the total size of Rs 50,000 crore, 10 per cent should be allocated to MFIs, 15 per cent to NBFCs with asset size of Rs 500 crore and below, and 25 per cent to NBFCs with asset size between Rs 500 crore and Rs 5,000 crore rated in investment grade. NBFCs have also sought a moratorium on loan repayments, and banks are considering this on a case-to-case basis.