MSME Credit Health Index

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About the Index

• Launched by:  TransUnion CIBIL in partnership with the Ministry of Statistics & Programme Implementation (MoSPI) has launched MSME Credit Health Index.
• Aim: To provide a measure of the growth and strength of the MSME sector in India
• The Index was  built using credit data submitted by lending institutions to TransUnion CIBIL
• The first version of the index is based on data from March 2018 to June 2020.
• Two Parameters: It  measures the credit health of India’s MSME industry on two parameters: growth and strength. 
  • Growth is measured by plotting increase in exposure value (outstanding balances) over time and
  • Strength is measured by decrease/increase in credit risk in terms of non-performing assets
• Both indices follow the principle of higher the better i.e. an increasing Growth Index indicates improvement in credit growth; and an increasing Strength Index implies better asset quality and therefore denotes an improvement in the structural strength of the sector.

Key highlights of the Index

• The Growth Index reflects muted growth in June 2020 owing to limited credit activity due to COVID-19 measures
• The MSME sector has seen an increased level of NPAs in the last two years consequent to a slower rate of economic growth. Cash flows of MSMEs have been impacted over a period of time thereby limiting their ability to service debts. 
• This has resulted in the Strength Index reflecting a decreasing trend.
• Sub-segment level: The momentum of growth, when compared to the benchmark for each sub-segment of MSME, is highest for the Micro segment (exposure less than Rs 1 crore)
•  A view on the Strength Index by MSME size reveals that the Index values across all segments have reached the same level in June 2020, while following a different trajectory in the last two years.
• But in the oper-Covid-19 quarter of December 2019, the strength was the lowest for the Medium segment
• In the ledger category level, NBFc & Private banks have shown a higher growth momentum.
• Private banks have contributed to over 50% of incremental credit to the MSME sector over the last two years. NBFCs were the fastest growing category in 2018. 
• The liquidity crisis towards the end of 2018 limited the ability of NBFCs to extend credit.
• The Strength Index by lender category reflects a relatively faster decline for private banks driven by few players experiencing higher stress in their portfolio compared to others. 
• But the NPA rates of Private banks continue to be at much lower level compared to NBFCs & PSU banks
• The Index indicates that credit growth has accelerated, as the overall growth index inched up to 114 points, which is a three-point increase from 111 in June. 
• The overall Strength Index also improved to 89 from 83 over the same period

Note: 

The emergency credit line guarantee scheme (ECGLS) has helped in the credit growth for small businesses, aiding an index of growth in loans for the crucial sector ending a notch higher at the end of the September quarter.

Significance 

• This Index will provide government, policy makers, lenders and MSME market participants, a numeric indicator for benchmarking the health of the MSME sector. 
• This measurement model will facilitate better MSME credit risk management, formulation of strategies and policies to support the revival and resurgence of the MSME sector and the economy.

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