Healthy loan growth, stable NPL trends

The recent MSME study by Trans­Union CIBIL shows the following trends: (1) loan growth healthy at 23 per cent YoY and stable NPL trends, (2) a new study on credit costs suggests 4-6 per cent slippages and 1.8-2 per cent credit costs, (3) borrowers taking multiple loans in a short period show higher delinquency, (4) vintage analysis shows no major concerns, (5) in terms of asset quality, private banks have the best, public banks have the weakest while NBFCs are between the two.

MSME loans: 23 per cent of overall loans and growing at a similar rate

MSME accounts for 23 per cent of loans in India as of 2QFY19. Overall growth trends have been quite solid at 20-25 per cent in recent quarters with 2QFY19 reporting 23 per cent YoY growth. Gro­wth is skewed towards lower ticket size lending (loans between Rs1-10m grew 28 per cent yoy in 2QFY19, up 60 bps yoy to 14 per cent in overall mix). Business loans to individuals also saw strong growth at 28 per cent yoy (loan mix up 50 bps yoy to 42 per cent). Private banks continued rapid expansion of their books in 2QFY19 and increased market share by 450 bps YoY to 33 per cent. PSBs continued to lose market share while SFBs and others maintained a robust pace. Rise in credit penetration, greater availability of data owing to increased formalisation of the economy and focus towards increasing share of non-corporate loans act as headwinds to growth going ahead.

Asset quality trends and vintage trends broadly stable with no alarming developments

Asset quality was stable QoQ at 3.5 per cent for private banks and 5 per cent for NBFCs. PSUs showed marginally higher deterioration this quarter (GNPL up 90 bps QoQ and 220 bps YoY to 15.2 per cent in 2QFY19). Vintage study, a new update in this report  based on the study conducted over 18 quarters starting from 4QFY14 to track the slippage of loans in the MSME segment, observed that the default rates are lowest for private banks at <0.8 per cent for the initial eight quarters and highest for PSBs at 3 per cent. In this backdrop, it is quite surprising to see the loan restructuring dispensation offered by RBI recently as the impact of GST, if any, is not clearly visible in the underlying trends on NPL ratios.

Delinquency rates for borrowers taking multiple loans from lenders have inched up

Default rates for borrowers in MSME segment taking multiple loans (loan stacking) within 60 days have increased from 2.2 per cent to 4.4 per cent over the past three years. Also, the report highlights that the gap in delinquency rates between borrowers having single sanctions and those with multiple sanctions has widened due to sanctions to loan stacking borrowers in risky CMR bands going up suggesting relaxation in prudence level by lenders. Loan stacking behavior is highest for NBFC borrowers at 23 per cent and lowest for PSU banks at 3.2 per cent. Also, the study indicates that a large proportion of loan stacking borrowers is exclusive to NBF­Cs as 63 per cent of loan stacking borrowers having taken the first loan from an NBFC avail the second loan from another NBFC while this proportion is far less for private and PSU banks. To some extent, this could probably result in a lower headline delinquency profile as fresh credit is available for the riskier borrowers as well. Slowdown in disbursements could result in a spike in NPLs.

NBFCs’ share in MSME lending continues to increase

The majority of growth in 2QFY19 was driven by NBFCs (market share up 150 bps YoY to 11.5 per cent). The share of NBFCs to MSME segment in new credit sanctions has increased to 17 per cent in 2QFY19 from 13 per cent in 2QFY16. Sanctions by NBFCs in 1HFY19 are hig­hest to transportation, real estate and education sectors. Also, NBFCs’ impact is low in deeper geographies with only 12 per cent share in sanctions.