Banks losing share to NBFCs in MSME credit

Why in the news ?
  • As per the research analysts of the Reserve Bank of India,the share of credit provided by banks to micro, small and medium enterprises (MSMEs) has declined since September 2016.
  • Whereas the share of loans by non-banking financial companies (NBFCs) nearly doubled to 10 per cent between December 2015 and March 2018.
More on news
  • Scheduled commercial banks’ (SCB) share in MSME credit has fallen from nearly 95 per cent in December 2015 to 90 per cent in March 2018.
  • Between 2014 and 2016, the deceleration in bank credit growth to MSMEs was as a result of an overall slowdown in economic activity, rising bank NPAs and reclassification of food and agro-processing units from the MSME category to the agriculture sector.
  • A significant fall in MSME credit growth in late 2016 was attributed to demonetisation, as credit growth fell significantly and turned negative during November 2016-February 2017.
  • However, loans extended by NBFCs to MSMEs grew rapidly at an annual average rate of 35 per cent between December 2015 and March 2018.
  • The divergent experiences of banks and NBFCs in terms of asset quality explains the difference in credit growth
Non-Banking Financial Company (NBFC)
  • A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government
  • NBFCs provides banking services without meeting the legal definition of a bank.
  • Unlike Banks , NBFC cannot accept demand deposits. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.
  • Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
MSMEs
  • Classification : ( As per the MSME development Act 2016 )
  • Micro Enterprise : investment uptoRs.25 lakhs
  • Small Enterprise :Investment above Rs.25 lakhandupto Rs.5 crore
  • Medium Enterprise : investment above Rs.5 crore and upto Rs.10 crore
  • The MSME sector comprises more than 63 million units and employs about 111 million people.
  • The share of MSMEs in GDP is about 30%, with the sector accounting for about 45% of manufacturing output and about 40% of India’s total exports.
Source
Indian Express


Posted by Jawwad Kazi on 18th Aug 2018
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