Reserve Bank of India (RBI) reported a substantial increase in credit to Micro, Small, and Medium Enterprises (MSMEs), constituting 15% of the banks’ non-food credit totaling Rs 154 lakh crore during the month. This marked a notable uptick from the 14.6% recorded in October the previous year. Specifically, credit to Micro and Small Enterprises (MSEs) experienced a robust growth of 24.2%, reaching Rs 18.53 lakh crore compared to Rs 14.92 lakh crore in the corresponding period last year.

Sectoral Deployment Highlights

Scheduled commercial banks deployed Rs 23.15 lakh crore in gross bank credit to MSMEs under priority sector lending in October. This figure represented a significant 22.8% increase from the previous year’s Rs 18.8 lakh crore and an 11.8% rise from September’s Rs 20.6 lakh crore. Credit deployment to Medium Enterprises also saw a noteworthy uptick, rising by 17.3% to Rs 4.61 lakh crore from Rs 3.93 lakh crore in October last year.

Challenges and Survey Insights

Despite this surge, a survey by FICCI highlighted challenges faced by SMEs, indicating that collateral-free credit, though outlined on paper, is not effectively implemented. The survey, involving 610 respondents, noted banks’ hesitancy to provide financing to SMEs without collateral. Additionally, the implementation and accessibility of government schemes, such as the Credit Guarantee Fund Trust for Micro and Small Enterprises Scheme, faced hurdles post-COVID.

Asset Quality and Outlook

Addressing concerns about asset quality, the gross non-performing assets (GNPAs) in MSME loans by scheduled commercial banks decreased by 14.3% to Rs 1.31 lakh crore for FY23 from Rs 1.54 lakh crore in FY22. This positive trend suggests a potential improvement in the health of MSME loans.