MSME Growth Slows To 5.4% From Dec To June As Merger Impact Masks Deeper Decline

The growth of Indian micro, small and medium enterprises (MSMEs) slowed to 5.4 per cent for the December to June period compared to the growth of 7.0 per cent for the same period last year, CareEdge Ratings said in a report. However, if the merger impact had been excluded, growth would have been slower at 7.7 per cent in June 2024. 

Industry growth declined to 8.1 per cent year-on-year (YoY) in June 2024 compared to 9.4 per cent YoY in May 2024, but increased from 7.4 per cent in June 2023 as the measured growth in large corporates was partially offset by growth in MSME, the report added.

Among major industries, growth in chemicals and chemical products, food processing, and infrastructure accelerated in June 2024 as compared with June 2023. Credit expansion for basic metal and metal products, petroleum, coal products and nuclear fuels and textiles moderated. The credit to large industries increased to 6.9 per cent YoY in June 2024 compared to 5.4 per cent in June 2023.

According to the Reserve Bank of India's (RBI’s) Financial Stability Report (FSR) for June 2024, credit offtake has continued to rise due to economic demand conditions and is primarily driven by services and personal loans. Credit growth is anticipated broad-based growth across segments, with personal loans are likely to outperform industry and service sectors. 

Medium-term prospects seem promising, with reduced corporate stress and sufficient provision buffer but ebbing inflation could also reduce the working capital demand. Further, with an enhanced focus on shoring up the deposit base and managing the Credit to Deposit ratio (which hovers around 80 per cent currently) and the proposed LCR norms, bank credit offtake could face challenges and growth is likely to moderate from our earlier expectations.

The services sector growth slowed to 7.6 per cent for the December to June period compared to the growth of 11.8 per cent for the same period last year as growth in advances to NBFCs decelerated. The segment witnessed a decrease in credit growth to 15.1 per cent YoY in June 2024, from 26.8 per cent recorded in June 2023.

This decline in growth can be attributed to reduced credit expansion in the 'non-banking financial companies (NBFCs)' (attributable to an increase in risk weights) and 'trade' sectors.