Second wave: 60% increase in bad loans from MSMEs

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A SECOND wave of Covid has thwarted a multi-sectoral recovery with lockdowns in states and the spread of disease that have heavily impacted MSMEs and the services sector, according to recent reports on bank and microloan delinquencies.

From hotels, tourism, transportation and aviation to trade and small manufacturing enterprises, selected sectors of the economy are beginning to report disproportionate impacts of the crisis, both in the form of lower incomes and an increase in the number of outstanding loans.

The impact of this forward movement can be twofold: any improvement in overall consumption trajectory is heavily dependent on recovery in service sectors such as trade, hotels, transport, communications and broadcasting services, which serve more than 20 million households; and corporations in the specified area that have reported higher growth rates may end up feeling distress in the informal segment.

MSMEs and microenterprises were hit hardest: in April and May, MSMEs accounted for almost 60% of added to non-performing assets (NPA), almost double what was previously the case. IN pandemic affected the business as early as the second week of April, said a senior representative of the Indian bank.

“Slippage mainly comes from MSMEs. About 60 percent of the NAPs (for April and May) are in the MSME sector. Previously, it was 30-40 percent. The elements of the default are labor shortages, transportation problems due to blockages, unavailability of raw materials and uncertain cash flows, ”the banker said.

Microfinance companies lending unsecured funds to microentrepreneurs have seen collection efficiency decline due to lingering Covid restrictions. “Loans over 30 days overdue or portfolio risk (PAR) could rise to 14-16 percent of portfolio this month from a recent low of 6-7 percent in March,” said ratings company Crisil.

“Our customers, who are mainly small traders and business people dealing with everyday goods, were unable to open their store and their livelihoods suffered accordingly,” PN said. Vasudevan, Managing Director and CEO of Equitas Small Finance Bank.

The Retail Association of India said May 2021 retail sales accounted for -79% of pre-Covid sales compared to May 2019 year-on-year. June is the month of gradual unlocking. However, the retail industry needs collective support from various government agencies, ”said Kumar Rajagopalan, CEO of the Indian Retailers Association.

Indian hotels, which reported a loss of Rs 524 crore in fiscal 2021, said their business was severely hit during fiscal 21 due to Covid. “In the second half of the year, the company has seen some signs of a recovery in demand, especially in holiday destinations. Although some states have experienced a second wave of the pandemic in the past few months, the government has also stepped up its vaccination campaign and the company continues to monitor the situation closely, ”the report said.

Consumer confidence in the current period, which has been in negative territory since July 2019, fell to a record low in May 2021. The Current Situation Index fell to 48.5 in May 2021 from 53.1 in March, according to the Reserve Bank of India. trust poll.

Air traffic is expected to decline in fiscal 2022 and a full recovery by the fourth quarter of next fiscal year only due to the debilitating impact of the second wave of Covid in India, Crisil said. Airport passenger traffic fell sharply, with average daily domestic passenger traffic in May 2021 halving from February 2021, or just 10 percent from pre-pandemic levels seen in May 2019.

In the automotive sector, during May, factory shipments of passenger cars and two-wheelers fell by one third from the previous month, while sales of three-wheelers were marginal at around 1,200 units. Cumulative sales of the five players in the commercial vehicle industry are nearly half the level of the previous month.

According to Sumya Kanti Ghosh, chief economic advisor to the State Bank of India Group, the overall consumption trajectory will depend on the recovery of services such as “trade, hotels, transport, communications and broadcasting services”, which serve some 25 million households. Corporations in the area reported the best growth by metric in the fourth quarter of fiscal 21, but that trend could soon reverse, he said.

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