ECLGS: increase in credit withdrawals from regular commercial banks to the MSME sectors : CMIE
“The takeoff is sudden and it’s relatively large and the only set of businesses to see an increase in bank lending are medium, micro and small businesses,” CMIE said in its weekly analysis.
According to the CMIE, these companies have largely, if not almost entirely, benefited from the central government’s Emergency Credit Line Guarantee (ECLGS) scheme, launched in November 2020.
ECLGS loans are complementary loans to help existing businesses overcome their difficulties resulting from the closures and other adverse effects related to the pandemic. The scope of the scheme was expanded in November 2020, March 2021 and May 2021. Till November 2021, Rs 2.9 lakh crore has been sanctioned under the scheme.
Citing RBI data, CMIE said the net increase in outstanding bank loans to medium, micro and small enterprises between April 2020 and November 2021 was Rs 1.37 lakh crore.
“ECLGS appears to have been effective in stopping any major financial stress in MSME sector operations. But what explains the strong recovery in lending to medium, micro and small enterprises in 2021-22 is that these loans are 100% guaranteed by the central government and there are no processing fees” , added the CMIE.
Reiterating the findings of a recent study by TransUnion CIBIL (ECLGS Insights Report, December 2021), the CMIE stated that 45% of ECLGS loans were used to clear suppliers, 13% to pay salaries and 29% to restart businesses. operations.
According to the CMIE, the outstanding balance of loans from regular commercial banks to medium-sized enterprises increased from Rs 1 lakh crore for three years until August 2020 to Rs 1.8 lakh crore by October 2021 with the monthly outstanding average SCB credit to medium-sized industrial companies in April-November 2021 43% higher than it was in 2020-21.
The CMIE said this was an extraordinary increase in outstanding loans to medium-sized industrial companies for two reasons. “First, overall credit growth has been modest, at only around 8% in a like-for-like comparison. Against this general trend, the sudden uptick in loan growth to mid-sized industrial units is extraordinary,” he said. -he declares.
“Secondly, before this sudden increase, outstanding loans to these companies had been stagnant for more than three years. So the sudden surge is extraordinary, again,” he added.