MSME loans, NPA at record highs in Gujarat

Growth in advances to small businesses in Gujarat is at a record high of 21.36 per cent, according to a recent report of State Level Bankers Committee (SLBC).

Moreover, bad loans in Micro, Small & Medium Enterprises (MSMEs) in Gujarat have surpassed a previous high and reached Rs 8,526 crore, or 7.4 per cent of outstanding advances of Rs 1,15,140 crore. Bankers said that certain industrial sectors in Gujarat are witnessing significant bad loans. Industry representatives presume that rise in advances should be because of the increasing requirement of working capital rather than a requirement for capital investments.

According to the SLBC report for July-September qua-rter of 2018-19, outstanding advances to MSMEs in Gujarat stood at Rs 1,15,140 crore, a rise of Rs 20,269 crore over Rs 94,871 crore at the end of fiscal 2017-18. The growth rate of advances in the first half stood at 14.97 per cent in 2015-16, -0.35 per cent in 16-17 and 3.19 per cent in 2017-18.

Jaimin Vasa, president of Gujarat Chamber of Commerce and Industry (GCCI) attributes the rise in advances to the priorities set by the central government. "PM wants more loans to MSMEs. We are also witnessing global recession, prices of raw materials have risen and the demand for goods has fallen. So working capital requirement has risen. At a time when demand is low, fresh capital investment are rare and so most advances should be for working capital," presumed Vasa.

Nilesh Jetparia, president of Morbi Ceramic Associations – Wall Tiles Division said that formalization of business transactions because of roll out of Goods and Services Tax (GST), delay in payment of GST refunds and prolonging of payment cycles, demand for loans has risen. "Payment cycle has risen from 15-60 days to 45-100 days," he said.

Vasa attributes the rise in Non-Performing Assets (NPAs) of MSMEs to stringent parameters adopted by banks to classify loans as NPAs. Nilesh Shukla, president of Gujarat Chapter for India SME Forum said that since loans have risen, NPAs have also risen accordingly. "Most of these NPAs are not willful but accidental, because of slowdown, delay in payments by buyers and other systemic issues. These are not willful defaulters like those of large corporates. So we should not club them together," said Shukla.

Ramesh Singh ED of Dena Bank, the lead bank in Gujarat said that sectors like ginning, textiles, infrastructure – including real estate are badly affected resulting in non-repayment of loans.