Tremendous resilience by SMEs during Covid but a lot of entities in SMA-2 category: SIDBI CMD Sivasubramanian Ramann

Credit and Finance for MSMEs: While it is good to see that small and medium enterprise (SME) units have shown tremendous resilience during Covid, a lot of entities are still in the special mention account (SMA) 2 category, said SIDBI Chairman and Managing Director Sivasubramanian Ramann at FE MSME Business Conclave last week in Delhi. “Statistics show that it (stressed accounts) is gradually declining but we are still not entirely sure,” Ramann said in a fireside chat with K G Narendranath, Executive Editor – Economics, The Financial Express.

SMA-1 loan accounts are those where repayments remain overdue for between 31 and 60 days while SMA-2 accounts are ones with delay from 61 to 90 days. The account turns into a non-performing asset (NPA) after 90 days of being overdue. 

“The intervention (like Emergency Credit Line Guarantee Scheme) ECLGS was very timely and powerful and hopefully recovery curve will allow us to see maybe upwards of 80 per cent of MSMEs coming out fairly strong, but I would still add a bit of caution,” said Ramann.

ECLGS for MSMEs was extended till March 2023 from March 2022 along with an enhanced guarantee cover by Rs 50,000 crore to take the total limit of the scheme to Rs 5 lakh crore from Rs 4.5 lakh earlier, Finance Minister Nirmala Sitharaman had announced in her budget 2022 speech. 

According to an SBI report authored by Group Chief Economic Adviser Soumya Kanti Ghosh in January this year, ECLGS saved nearly 13.5 lakh MSME loan accounts with credit support. In absolute terms, accounts worth Rs 1.8 lakh crore were saved from slipping into NPA during the Covid period. This was equivalent to 14 per cent of the outstanding MSME credit being saved from becoming NPA, the report had noted.

“Our eyes are on the statistics to understand whether MSMEs can come out of this (stress) in a robust manner,” Ramann added.

The Reserve Bank of India (RBI) in its June 2022 Financial Stability Report launched last week had also noted that the aggregate gross NPA Ratio (public and private banks) in the MSME sector moderated from 11.3 per cent in September 2021 to 9.3 per cent in March 2022. However, it remains relatively high.

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The central bank had also cautioned that Rs 46,186-crore restructured MSME portfolio constituting 2.5 per cent of total advances under the May 2021 Resolution Framework 2.0 scheme has the potential to ‘create stress’ in the sector.

MSMEs being largely informal businesses comprise over 99 per cent micro enterprises with very poor or limited access to formal credit channels. To enable credit access to micro units, the government had mandated Udyam portal registration for priority sector loans. In this context, Ramann noted that SIDBI has aimed to turn as many micro units into formal enterprises for even banks to look at lending to them.

“Today it is microfinance institutions (MFIs) that lend to micro units. So, another plan we are working on very closely with MFIs is how to bring more self-help groups (SHGs) into micro segment,” he added.