Data | MSMEs remain the most stressed sector, urban cooperative banks at risk
In August 2020, 89.6% of all loans granted by urban cooperative banks to the MSME sector were under moratorium
A higher proportion of loan recipients from the Micro, small and medium enterprises (MSME) industry opted for the COVID-19 moratorium in August 2020 compared to April 2020. Business and personal borrowers did the opposite – more withdrew from the moratorium in August 2020 after initially taking advantage of it in April 2020 This indicates a relatively higher stress rate in the MSME sector. Urban cooperative banks (UCB) will bear the brunt of this stress as more than 30% of their loans went to the MSME sector in March 2020, and nearly 90% of these loans were under moratorium in August 2020.
Loans under moratorium decreased in August 2020 (represented by red bars) compared to April 2020 (represented by blue bars) in all sectors except MSMEs. This indicates persistent stress in the area even after the unlocking process has started.
In August, 68% of all loans to MSMEs were under moratorium, a marginal jump from 65% in April.
Impact of COVID-19
Even among MSMEs considered to have the lowest risk *, the share of missed payments for term loans fell from 9% in March to 25% in June. In companies considered the riskiest, the share more than tripled, from 11% to 36% between March and June.
* Risk factors are calculated based on the credit score, which indicates the first signs of trouble in an MSME.
Over 30% of total UCB loans went to the MSME sector in March 2020 – the highest among all types of banks. Thus, stress in the MSME sector will have a greater impact on the balance sheets of UCBs.
Note: PSB: Public sector bank; PVB: Private sector bank; SCB: all listed commercial banks; NBFC: Non-Banking Financial Company; FB: Foreign banks; SFB: Small Financial Bank
As of August 2020, 89.6% of all loans made by UCBs to the MSME sector were under moratorium – the highest among all types of banks. It is still unclear how much of these loan accounts will turn into NPA (overdue loans> 90 days).
Source: RBI, MPME Pulse