The government has asked 11 public sector banks reduce lending in a bid to strengthen their balance sheets. This has led to concerns over whether the reduction in lending by these lenders would make it tough for MSME’s to avail credit.

At present this is the share of lending to MSME’s

Source: mint

Data collected from 11 lenders shows that they have contributed 30% of the outstanding credit to MSME’s as of December 2017. Many lenders have a large base of MSME borrowers. Data suggests that Public Sector Banks are not a major contributor of credit to MSME’s. Their share of lending to MSME’s has dropped to 55.4 % by December 2017 from 61.5 % two years ago.

A major proportion of lending to MSME’s is being done by Non-Banking Finance Corporations. These companies have been lending to MSME’s aggressively and have the potential to dethrone public sector banks as the largest lenders to MSME’s. NBFC’s have a healthier loan book than public sector banks and a more robust credit evaluation process.

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Small businesses in India require funding and under the present circumstances, the government should encourage NBFC’s to provide the funds.

Read the original article at livemint

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