You are currently viewing NPAs in MSME sector increased by 12.5% in Q4 FY22

NPAs in MSME sector increased by 12.5% in Q4 FY22


NPAs in MSME sector increased by 12.5% in Q4 FY22 compared to same quarter last year

Micro, Small and Medium-Sized Enterprises (MSME) (MSME). The Micro, Small & Medium Enterprises Development (MSMED) Act of 2006 states that companies engaged in the production, manufacture, or processing of goods and commodities are considered MSMEs. The businesses are separated into two groups.

Here are a few MSMEs’ key characteristics:

  • MSMEs are renowned for offering fair help to enterprises seeking to increase access to both domestic and international markets.
  • MSMEs assist businesses with their product development, design innovation, intervention, and packaging needs.
  • MSMEs are in favour of modernising this industry as a whole, as well as its infrastructure and technology.
  • MSMEs offer loans and employment opportunities.
  • MSMEs offer various banks in the nation credit limits or funding assistance.

MSMEs’ function in the Indian economy

When predicting the Indian economy, the MSME sector has proven to be a highly dynamic force. MSMEs have aided in the growth and development of numerous product segments and industries since they produce and manufacture a variety of goods for both domestic and international markets.

MSMEs have been crucial in bringing employment possibilities to disadvantaged areas. Compared to the major enterprises in cities, they have contributed to the industrialisation of these areas with a minimal capital cost. MSMEs have also made an important impact and made contribution to the growth of the nation in a variety of ways, including the operational flexibility,requirement for minimal investment, a low rate of imports, and a significant amount of domestic production.

What is the maximum MSME?

What is the maximum MSME?

* Microbusinesses can only invest up to 1 crore INR.

* The investment cap for small businesses is 1–10 crore INR.

* The investment cap for medium-sized businesses is 10 to 50 crore INR.

* The Micro Enterprise Turnover Limit is less than 5 crore INR.

* The Small Enterprise Turnover Limit is 1 to 25 crore INR.

* The maximum turn-over for medium-sized businesses is 25–250 crore INR.

The MSME’s are backbone of Indian economy.

NPAS in the MSME Sector

A report by SIDBI and credit bureau TransUnion CIBIL revealed the non-performing assets (NPAs) in the micro, small, and medium enterprise (MSME) sector have increased 12.59% in the fourth quarter of the financial year 2021–22 to Rs 2.95 lakh crore from Rs 2.62 lakh crore during Q4 FY21, indicating the impact of Covid. In comparison to 12.5 percent in March 21 and 12.6 percent in March 20, the overall MSME NPA rate as of March 22 was 12.8%.The MSME Pulse August 2022 report stated that the NPAs began to rise from Rs 2.42 lakh crore during Q3 FY21 and reached a peak of Rs 3.10 lakh crore during Q2 FY22 before significantly declining to Rs 3.01 lakh crore in the next quarter and further in Q4. Importantly, the decline in NPAs was apparent throughout the micro, small, and medium-sized business segments of the industry.

The micro segment had a lower NPA rate than the small segment up until Q3 FY21. The analysis highlighted that the trend has reversed, showing that Covid had the greatest influence on the micro segment. As of Q4 FY22, the small segment’s NPA rate was 10% (down from 11% in Q2 FY22), while the micro and medium segments had NPA rates of 12% (down from 13% in Q1 FY22) and 16% (down from 17% in Q2 FY22), respectively.

Regarding the type of lender, NPA rates for private banks, non-banking financial companies (NBFCs), and public sector banks (PSBs) all showed a rise from Q3 FY21 for the next two to three quarters before stabilising or beginning to fall. For instance, the NPA rate for private banks (the lowest among NBFCS and PSBs) rose from 5.9% in Q3 FY21 to 6.8% in Q2 FY22 before falling to 5.6% in Q4 FY22.

In comparison to commercial banks and NBFCs, PSBs had the highest NPA rate, which rose from 16.1% in Q3 FY21 to 21.1 percent in Q2 FY22 but stayed constant at 20.8 percent as of Q4 FY22. The NPA rate for NBFCs also reached a peak, going from 8% in Q2 FY21 to 10.9 % in Q1 FY22, before falling to 9.6 % in Q4 FY22.The Reserve Bank of India (RBI) mandated in March 2021 that banks and other lenders report accounts restructured due to the pandemic to credit bureaus, and based on an analysis of the restructured loans owed to Covid, the report stated that as of March 2022, 2.7 lakh accounts were tagged as restructured in the MSME sector (aggregate outstanding of less than Rs 50 crore). This accounted for about 2.3% of all live accounts reported over the same time frame. From the standpoint of the balance, it made up Rs 0.35 lakh crore, or roughly 1.5% of MSME outstanding as of March 2022.

While the gross NPA ratio of banks in the MSME sector has decreased from 11.3 percent in September 2021 to 9.3 percent in March 2022, the bad assets in the sector continue to be relatively high, the RBI said in its Financial Stability Report (FSR) in June of this year. The Rs 46,186 crore reformed MSME portfolio, which made up 2.5% of all advances under the May 2021 restructuring programme, was identified as having the potential to put pressure on the sector by the central bank.



Kanakkupillai is your reliable partner for every step of your business journey in India. We offer reasonable and expert assistance to ensure legal compliance, covering business registration, tax compliance, accounting and bookkeeping, and intellectual property protection. Let us help you navigate the complex legal and regulatory requirements so you can focus on growing your business. Contact us today to learn more.