The slowdown in growth in total bank credit for micro and small industries continued in the second month of FY 2021-22. Data from the Reserve Bank of India (RBI) has revealed that the outstanding as of May 2021 stood at Rs 10.27 lakh crore, with a negative growth of 3.6 per cent year-on-year as against Rs 10.65 lakh crore in May 2020. The negative growth on a yearly basis has further increased from the negative 2.2 per cent in April 2021. It had reached 2.5 percent in March 2021 and 1.5 percent in March 2020. The decline in credit growth is due to the second wave of the pandemic, which hit in February. Last year too, there was a two-month decline in credit growth on a year-on-year basis, and recovery started in June.
There will be more damage when the third wave arrives
Mohat Jain, chairperson of MSME committee at PHD Chamber of Commerce and Industry, told Financial Express Online that the correlation between last year and this year shows that the sector has suffered a major setback and units were unable to take credit due to the pandemic. Apart from the need for fixed assets, the company needs business operations to apply for the loan. Because of the second wave that brought businesses to a halt again, credit growth declined. If the third wave comes, it will be worse, as MSMEs had exhausted all their resources during last year’s wave. On the other hand, ECLGS is for existing lenders and not for those who have never taken any loan before, are facing cash flow constraints.
However, growth in credit for medium industries was strong at 64.7 per cent. It increased from Rs 1.11 lakh crore in May 2020 to Rs 1.83 lakh crore in May 2021. It had decreased from 70.8 percent in April 2021. Banks had extended credit of Rs 1.89 lakh crore in April 2021, which was higher than Rs 1.10 lakh crore in April 2020.
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With this, the share of MSEs in India’s total bank credit also declined for the fifth consecutive month. From 12.11 per cent in December 2020, the share of MSE has fallen to 12.09 per cent in January 2021, 11.8 per cent in February, 11.3 per cent in March, 9.7 per cent in April and now 9.48 per cent in May. Total bank credit stood at Rs 108.33 crore in May 2021, a jump of 6 per cent against Rs 102.22 lakh crore in May 2020. This information has been received from RBI’s July bulletin.