According to the latest FICCI-IBA Bankers’ Survey, Non-performing asset (NPA) levels in the MSME sector are anticipated to rise over the next six months. The H1 2024 survey, which included 22 banks from the public, private, and foreign sectors representing approximately 67 percent of the banking industry, revealed that 38 percent of respondents foresee an increase in MSME NPAs in the upcoming half-year.
Agriculture and textiles are also among the top segments expected to see a rise in NPA levels, with 50 percent and 45 percent of respondents respectively predicting an increase. Additionally, the gems & jewellery and food processing sectors are in the top five, with 30 percent and 25 percent of respondents respectively expecting a surge in NPAs.
The FICCI-IBA report on banks’ role in India’s goal to become a $30 trillion economy by 2047, released last week, highlighted a critical issue: despite the increasing formalization of MSMEs and their expanding data footprint, banks are struggling to maintain profitable lending relationships.
The report emphasized the potential for lenders to completely rethink MSME lending by leveraging various data sources, including bank statements, tax records, and payment gateway data.
Meanwhile, gross NPAs in MSME loans by scheduled commercial banks decreased by 14.3 percent, dropping to Rs 1.31 lakh crore for FY23 from Rs 1.54 lakh crore in FY22, according to FE Aspire.
FY23 GNPAs were the lowest in the past five years, peaking at Rs 1.83 lakh crore in FY20 from Rs 1.63 lakh crore in FY19 and declining to Rs 1.82 lakh crore in FY21 before shrinking to Rs 1.31 lakh crore in the previous fiscal.
In FY24, banks wrote off Rs 20,261 crore in bad loans linked to micro and small enterprises vis-a-vis Rs 28,392 crore written off in FY23.