GST resulted in 5 times increased lending to small businesses- SBI report

The incremental credit to the MSMEs has shown an increase of 5 times reaching 1.23 lakh crores as compared to 25,700 crores during the corresponding period before GST, the report said.

According to a report of the State Bank of India (SBI) rolled out on Tuesday, the incremental credit to the Micro Small and Medium Enterprises has increased five times to 1.23 lakh crore post the implementation of Goods and Services Tax (GST).

The economists of the SBI dismissed the concerns over the credit supply to small businesses as a “myth” and said that the sector witnessed a “stupendous” loan growth post-GST. The report said that in the 15-month period after GST, the incremental credit to the MSMEs (under priority sector) has shown an increase of 5 times reaching 1.23 lakh crores as compared to 25,700 crores during the corresponding period before GST.

The report ascribed the deceleration in credit before the implementation of the GST partly to the overall slowdown in economic activity, rising Non-Performing Assets and the reclassification of food and agro-processing units from MSME category to the agriculture sector.

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At the RBI Central Board meeting in the month of November, the Board had asked the banks for some forbearance for classifying advances to MSMEs. There were reports also claiming that along with asset reclassification, there were concerns on credit flow to the sector considering the fact that there were 11 banks under the prompt corrective action framework. The liquidity issues faced by non-bank lenders, which amount to one of the largest credit suppliers to this sector, were also a reason to worry.

Regarding the overall 15% growth achieved by the industry in October, the report said that there has been a lot of fuss about the year-on-year growth being at a five-year high but it has, in fact, declined as compared to the proceeding month. However, there was a decline in credit growth for the same period in financial years 2017 and 2018.

“The good thing is that decline in incremental credit growth is seasonal and may not still be a matter of concern. We are not more concerned about the growth slowdown”, the report added.

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