LARGE AND MID-SIZED public sector banks are expected to continue growing their micro, small and medium enterprises (MSME) loan book in the current financial year, even though these loans account for the highest sectoral non-performing assets (NPAs) for them.
Sanjay Agarwal, senior director at CareEdge Ratings, said the key factor driving MSME loan growth is the profitability of such products. Agarwal says banks receive higher yields on MSME loans than corporate loans, and the segment is lucrative as banks can offer various services related to cash flow management, forex business and payments business to the MSMEs.
"The MSME business is also geographically expansive in nature as businesses are spread across the country. Why banks are comfortable with MSMEs more than corporates is that the loans are granular and have lower ticket sizes," Agarwal said. Unlike a ₹500-crore large corporate loan, the MSME loan ticket size typically ranges between ₹2 crore and ₹25 crore, which makes it easier for lenders to create provisions and write off accounts in case of delinquency.
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