two years since the start of COVID-19 Pandemic in the country, the situation of Micro, Small and Medium Enterprises (MSMEs) and other small businesses in Maharashtra remains precarious with a rise in NPAs (non-performing assets) and dues recorded during this period.
As the pandemic affected both formal and informal businesses, MSMEs and other small firms especially faced the double whammy of loss of business and rise in raw material price. Raw material prices have more than doubled in the last two years, affecting the operating profits of manufacturing MSMEs.
For firms and businesses in the services sector, the pandemic and restrictions had seen businesses evaporate almost overnight. But even as Covid-19 restrictions are being eased, business is far from normal for small firms.
Experts say that sector-wise NPAs are a good measure of the financial health of a sector. Thus, higher NPAs mean an increase in the number of loan default cases, which can create problems for businesses and banks.
Minutes of the meeting of the SLBC (State Level Bankers’ Conference), the apex body of bankers in the state, point to a steady increase in NPAs and arrears for lending to MSMEs in the last three years. A similar trend has been observed in the case of Mudra loans, the special loan program aimed at providing loans up to Rs 10 lakh to small, non-corporate, non-finance firms and businesses.
As on December 31,2019, NPAs to MSMEs and outstanding for finance stood at 14.69 per cent and Rs 2.27 lakh crore, respectively. Mudra NPAs and outstanding stood at 19.43 per cent and Rs 25,406 crore respectively on the same date. There has been an increase in both the parameters during 2020-21 and 2021-22. Thus, as on December 31, 2020, the minutes of SLBC recorded 13 per cent NPAs and Rs 2.66 lakh crore outstanding for MSMEs. On the same date, NPAs and outstanding for Mudra loans stood at 20 per cent and Rs 26,897 crore, respectively. The minutes of the SLBC meeting mentioned that as on December 31, 2021, the NPAs and arrears for the MSME sector stood at 20 per cent and Rs 2.81 lakh crore, respectively, while the currency NPAs and arrears stood at 23 per cent and Rs 37,556 crore, respectively.
For MSMEs, government measures, including the Emergency Credit Line Guarantee Scheme (ECLGS), have failed to provide the relief they had hoped for. While credit was extended, an unusual increase in the cost of raw materials such as steel and iron has impacted margins. For non-manufacturing businesses, the overnight halt of business has seen a drop in earnings.