Credit risk is building in auto MSMEs, says Pulse report
There was a marked slowdown in commercial credit growth in the quarter ending June 2019 along with a marginal deterioration in asset quality, according to the seventh edition of TransUnion CIBIL-SIDBI MSME Pulse Report.
The total on-balance sheet commercial lending exposure in India declined to ₹63.8 lakh crores in June 2019 from ₹65.5 lakh crores in March 2019. This slowdown comes to post a sustained quarter-on-quarter (QoQ) steady growth performance in the commercial credit segment over the last few years.
“The year-on-year (YOY) commercial credit growth stood at 10.4 per cent in the quarter ending in June 2019. However, the QoQ comparison indicates a 2.6 per cent decline in credit exposure in the quarter ending June 2019 over March 2019,” the report said.
Auto MSMEs
Referring to the credit risk build-up in the Auto Industry MSMEs, the report said the magnitude of 2-notch downgrades in the transition matrix plotted for auto industry MSMEs is in the range of 14per cent to 24per cent during June 2018 to June 2019 whereas the corresponding numbers were 12per cent to 15per cent during June 2017 to June 2018.
“This indicates that the good MSMEs in the auto industry have downgraded more than last year,” it added.
Satish Pillai, the Managing Director and CEO of TransUnion CIBIL, observed that even though the underlying risk for good MSMEs in the auto industry may be increasing, these MSMEs still have lower NPA (non-performing asset) rates than MSMEs from other sectors.
“However, we are noticing accelerated degradation in Auto Industry MSMEs which have been maintaining better CMR (CIBIL MSME Rank, which predicts early signs of risk).
“We will continue to monitor these early signs of credit risk build up carefully. With progressive policies and support, we can expect the Auto industry to maintain a strong position in the Indian economy,” said Pillai.
The report emphasised that the auto industry has historically been one of the best performing industries on credit growth and asset quality. While some of the other sectors, like textiles and construction, have seen a rise in the NPA rates, the auto industry continues to be the lowest delinquent industry over the years.
Non-Performing Assets
The report said a marginal deterioration in asset quality had been observed with the Non-Performing Assets (NPA) rate surging to 16.1 per cent in June 2019 from 15.5 per cent in March 2019. The overall NPA rate of commercial lending was at the peak of 17.2 per cent in June 2018. So, the increase seen is still less than a year ago.
NPA rates in Micro and SME segment have remained range-bound between 8.5per cent (June 2018) to 8.7per cent (June 2019) and 10.6per cent (in both June 2018 and June 2019) respectively over the last year. Growth in credit exposure is proportional to gross NPA amount in Micro & SME segment, and therefore, the NPA rate remains range-bound.
NBFCs share declines, NPAs increase
Non-Bank Financial Companies (NBFCs) that were steadily gaining market share across all commercial credit segments could not maintain the pace in H1 (April-September) of 2019.
Public Sector Banks have traditionally been the largest lender to the MSME (Micro and SME Segment) sector. Over the few years, Private Banks and NBFCs have successfully managed to gain market share from Public Sector Banks on MSME lending.
“However, in the quarter ending June 2019, the share of NBFCs has declined for the first time in the last two years. NBFCs have also witnessed an increase in NPA rates in the same period,” the report said.
NBFC credit outstanding shows a 1 per cent decline over six months (January - June 2019) versus the same period last year. NBFCs credit growth was at 17.9 per cent last year from January 2018 - June 2018 period.
The absolute NPA amount has also increased in the range of 25-28 per cent. The NPA rate for NBFCs has escalated to 5.9 per cent in the quarter ending June 209 from 4.4 per cent in June 2018.
The report said the slowdown in credit growth coupled with the ongoing crisis the NBFC industry is facing, has contributed to the decline in asset quality for the segment.
Published On : 16-10-2019
Source : The Hindu Businessline
