The total on-balance sheet commercial lending exposure in India declined to Rs. 63.8 lakh crores in June 2019 from Rs. 65.5 lakh crores in March 2019
Mumbai: A recent report by TransUnion CIBIL and Small Industries Development Bank of India (SIDBI) shows a marked slowdown in the commercial credit growth for the quarter ending June 2019. The loss in momentum follows a quarter-on-quarter (Q-o-Q) steady growth performance in the commercial credit segment over the last few years. The year-on-year (Y-o-Y) commercial credit growth stood at 10.4 per cent in the quarter ending June 2019. However, the Q-o-Q comparison indicates a 2.6 per cent decline in credit exposure in the quarter ending June 2019 over March 2019. The total on-balance sheet commercial lending exposure in India declined to Rs. 63.8 lakh crores in June 2019 from Rs. 65.5 lakh crores in March 2019.
A marginal deterioration in asset quality has also been observed with the Non-Performing Assets (NPA) rate surging to 16.1 per cent in June 2019 from 15.5 per cent in March 2019. The overall NPA rate of commercial lending was at 17.2 per cent in June 2018 so despite the recent increase seen is still less than a year ago. NPA rates in Micro and SME segments have remained range-bound between 8.5 per cent (June 2018) and 8.7 per cent (June 2019) and 10.6 per cent (in both June 2018 and June 2019) respectively over the last year. Growth in credit exposure is proportional to gross NPA amount in Micro & SME segments and therefore the NPA rate remains range-bound. It is crucial to note that the NPA rate in commercial lending was at a peak of 17.2 per cent in June 2018.
The report also covers a study on the credit risk build-up in the auto industry MSMEs. The study analysed the transition matrix of the auto industry MSMEs based on the CIBIL MSME Rank (CMR).
CMR is a credit score for MSMEs where the score output rank values range from 1 to 10. CMR predicts early signs of risk. Typically, MSMEs with CMR-1 to CMR-3 are considered lowest risk, CMR-4 to CMR-6 are medium risk and CMR-7 to CMR-10 are the highest risk. Transition matrix provides an indicator of portfolio movement across different time periods by observing rank downgrades and magnitude of rank downgrades (1-notch, 2-notch) which are an early indicator of risk.
The magnitude of 2-notch downgrades in the transition matrix plotted for auto industry MSMEs is in the range of 14 per cent to 24 per cent during June 2018 to June 2019 whereas the corresponding numbers were 12 per cent to 15 per cent during June 2017 to June 2018, indicating the good MSMEs in the auto industry have downgraded more than last year.
Commenting on the findings, Satish Pillai, Managing Director and CEO of TransUnion CIBIL, said: “Even though the underlying risk for good MSMEs in auto industry may be increasing, these MSMEs still have lower NPA rates than MSMEs from other industries. However, we are noticing accelerated degradation in auto industry MSMEs which have been maintaining better CMR. We will continue to carefully monitor these early signs of credit risk build up. With progressive policies and support, we can expect the auto industry to maintain a strong position in the Indian economy.”
It is important to note that the auto industry has historically been one of the best performing industries on credit growth and asset quality. While some of the other industries, like textiles and construction have seen a rise in the NPA rates, auto industry continues to be the lowest delinquent industry over the years.