Risk-averse banks slow down MSME lending

New Delhi Bank credit growth to Micro, Small and Medium Enterprises (MSMEs) has decelerated on a year-on-year basis in the first three months of the current fiscal, according to Reserve Bank data.

Players in the MSME sector, the backbone of domestic industry and largest employer, said risk averseness makes banks reluctant to provide loans to small units, leading to a deceleration in bank credit growth. As per the latest Reserve Bank data, the credit to medium industries in June grew by 13.2 per cent (47.8% last year) and micro and small industries by 13 per cent (29.2% a year ago). In absolute terms, the gross bank credit outstanding to medium industries at June-end was Rs2,63,440 crore compared to Rs2,32,776 crore in June last year.

In the case of micro and small industries, the credit outstanding in June was Rs6,25,625 crore against Rs5,53,675 crore in the corresponding month of 2022. In May, the credit to medium industries grew by 18.9 per cent (42.9 per cent last year) and micro and small industries by 9.5 per cent (32.7 per cent a year ago).

According to another set of RBI data for April, loan growth of medium industries was 19.1 per cent against 53.7 per cent last year. The growth in the case of micro and small industries was 9.7 per cent in April 2023 compared to 29.8 per cent in the year-ago month. FISME Secretary General Anil Bhardwaj said while the RBI data showed double-digit growth in bank credit to MSMEs, which might indicate a free flow of institutional finance to MSMEs, the fact remains that getting bank loans is an uphill task for individual MSMEs.