MSME credit demand jumps 60% from pre-pandemic levels – a sign of rebound in economic activity

• The MSME sector is undergoing a quiet but steady revival, going by the increase in credit demand and a moderation in NPAs over the last one year.
• A new report has revealed that thanks to the Indian government’s ECLGS scheme, credit demand in the MSME sector has surged rapidly.
• A closer look at the data also suggests that the micro enterprises will need more assistance and time to recover, while the medium enterprises have rebounded the most.

Micro, small and medium enterprises (MSMEs) are a critical cog of the Indian economy, contributing nearly a third to the country’s GDP and half of its exports. Now, in signs of a pickup in economic activity, a new report has outlined that MSME credit demand is now 60% higher than pre-pandemic levels.

Given the importance of the MSME sector to the Indian economy, the Indian government announced the emergency credit line guarantee scheme (ECLGS) during the first wave of the Covid-19 pandemic in the form of a ₹3 lakh crore assistance. This was part of the government’s larger ₹20 lakh crore stimulus package.

The scheme was subsequently extended multiple times – with the latest extension lasting up to March, 2023.

These measures, according to a MSME Pulse report by credit bureau Transunion Cibil and SIDBI, have boosted growth in MSME credit demand as well as disbursements – although lenders are prioritising existing borrowers over new ones.

According to the report, credit demand has surged 60% when compared to the pre-pandemic levels, while commercial credit inquiries have also picked up pace in the last one year. Both these metrics are signs of a recovery in economic and business activity, the report stated.

Private lenders more proactive than public sector banks – NBFCs stage a recovery, too

Interestingly enough, private sector lenders – banks and financial institutions – are a little more proactive than public sector banks in issuing credit. Specifically, while credit from private lenders has seen a 69% increase, that from public sector banks has jumped 60%.

Non-Banking Financial Company (NBFCs), which saw a decline in issuing credit in the December 2021 quarter, have since recovered quickly.

Disbursements growing steadily

After plunging during the second wave of Covid-19, credit disbursements have seen a steady growth since then, with the biggest rebound seen in the September 2021 quarter.


Interestingly, small enterprises have been beneficiaries of the largest disbursements, followed by medium and micro enterprises.

Medium enterprises show highest growth in loan size

The average loan size has increased rapidly – by nearly 50% – in the medium enterprises segment to ₹1.4 crore, from ₹95 lakh during the first wave of Covid-19.

For micro enterprises, they have remained stagnant at ₹9 lakh, in comparison.

NPAs are on the rise in the micro segment

The medium enterprises segment has the highest rate of non-performing assets (NPAs) in the MSME sector, followed by the micro and the small segments.

Interestingly, the micro segment has seen a bigger increase in NPAs, while the small and medium segments have seen a relatively moderate increase when compared to the first wave of Covid-19.

Over the last one year, though, NPAs across all the three segments are on the decline, having peaked during the second wave of Covid-19 last year.

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