The need of Industry Spotlight

MSME sector plays a critical role in the economic growth of our nation. In India, more than 6 crore MSMEs contribute around 29.7% of the GDP and provide employment to more than 11 crore persons. The MSME sector is a vibrant and dynamic sector and has also been a major export contributor, with 48.1% share in the total exports during FY 2018-19, thereby holding the promise of taking the GDP growth of the nation to next level. Accordingly, it becomes critical for the policy makers to frame policies based on real time tracking of the data. Flow of credit has always been a good indicator for assessing the health of the industry sectors and their prospects.

Clusters have been the mainstay of the Indian growth story and in view of the same SIDBI and CRIF High Mark have collaborated to present the “Industry Spotlight” report, which presents sectoral deep dive of a prospective export intensive industry sector in its each edition. The report analyses the credit landscape of the sector, major lenders, sectoral composition, borrower segments along with its risk analysis. The unique feature of the report is the analysis of credit flow at cluster level, with further slicing at the level of established v/s emerging clusters in the respective industry sector, while factoring the state of MSMEs in the respective cluster.

Sector Overview

• Total market size USD 48-50 Bn
• Contributes 8% to India’s manufacturing production and 1.5% to country’s exports

Credit Size

• Total amount of credit availed (Credit value) as of Mar 2021 is `94.8K crore
• Y-o-Y increase of 3.2%, while Q-o-Q decline of 5.5%
• By volume or number of active loans, the sector as of Mar 2021 stood at 199.49K

Credit Portfolio Health

• NPA percentages have reduced every quarter since Dec 2018
• Y-o-Y NPA improved by 5.83% in Mar 2021 and stood at 13.6%; Q-o-Q reduced by 0.35%

Export Credit Health

• Export credit as of Mar 2021 stood at INR 2.2K crore, with a nearly 8% Q-o-Q decline, and 6% Y-o-Y decline

Share of MSME Borrower Segment in Credit Portfolio

• 3 Lakh borrowers as of Mar 2021
• MSME borrower segment constitutes 95% of the overall number of loans (credit volume) to the sector and 30% of the overall amount of loans (credit value) as of Mar 2021
• 83% share of Micro segment borrowers in disbursements (by volume) in FY 2020-21

Share of Top Regions in Credit Portfolio

• Share of top 12 regions rich in Electrical Machinery manufacturing account for 84% of the credit portfolio
• Share of top 12 regions rich in Electrical Machinery manufacturing account for 32% of the overall credit active units in the country.

Recent slowdown in the sector and impact of the COVID-19 pandemic

While the industry has been growing in terms of production and turnover over the last several years, the recent demand slump in the domestic and global auto markets, tighter access to credit, coupled with policy and market developments in the country have had a severe impact on the auto and auto components sector in 2019. Although experts believed that the industry will bounce back around the last quarter of FY 2019-20, it saw an unprecedented decline in production and sales as the country came to a standstill during the lockdown imposed by the Government to curb the spread of the novel Coronavirus disease (COVID-19) in Mar 2020.

The automobile industry produced 26.36 million vehicles in FY 2019-20, witnessing a 15% decline in production over the previous year, with sales reducing by 18%. The total turnover of the auto component industry stood at INR 3.49 lakh crore in FY 2019-20, contracting by 12% over the previous year

Growth in Credit

The total amount of credit availed by the sector (credit value) as of June 2020 stood at INR 113K crore, witnessing a minor Q-o-Q growth of 1%, owing to the existing demand slump in the market, exacerbated by the suspension of manufacturing activities in the immediate aftermath of the lockdown in Mar 2020. This added to the woes of the sector already undergoing demand slowdown, due to which the growth in credit value during the same quarter previous year was also low at 2.3%. By volume5 or the number of active loans, the sector as of June 2020 stood at 137.88K.

Portfolio Health

The auto and auto components industry has witnessed declining NPAs (proportion of credit value delinquent by 90+ days) over the last 6 quarters, standing at 9.95% as of June 2020. The NPAs declined by nearly 3% in a span of one year and by 1.5% over the previous quarter.

Export Credit Growth

Exports of the sector also felt the impact of the slowdown in the industry. Overall amount of export credit (value) saw a huge drop of 35% from Dec 2018 to Mar 2019. Exhibiting some signs of recovery, export credit witnessed growth of 5% Q-o-Q as of Sep 2019, falling again by 5.1% as of Dec 2019. The COVID-19 pandemic and the nationwide lockdown in Mar 2020, severely impacted exports of auto and auto components industry as well, with export credit declining by 20% over the previous quarter as of June 2020 and by 14% over June 2019.

91% of the overall number of loans to the sector is concentrated in micro, small and medium segment of borrowers:

The auto and auto components industry has a presence of nearly 1.29 lakh borrowers as of June 2020. The MSME borrower segment occupies a share of 91% in the overall number of loans (credit volume) to the sector as of June 2020.

The share of credit to micro borrower segment in the industry is the largest at 58% having increased by 4% over June 2019, while that of small borrower segment has decreased by 1% over June 2019. Medium borrower segment saw a decline in share of nearly 2% Y-o-Y as of June 2020.

80% of the overall credit amount to the sector is concentrated in the top auto clusters

Top 8 auto clusters constitute 80% of the overall amount of credit (credit value) availed by the auto and auto components industry as of June 2020. Within these, established auto clusters (total credit> INR 5000 crore) namely Mumbai - Pune Cluster, Delhi - Gurgaon - Faridabad cluster, Chennai cluster contribute to 93% of the credit portfolio.

Sanand (Ahmadabad) cluster and Pithampur cluster are among the emerging clusters identified by the Government under its ‘Make in India’ programme and display good portfolio growth and performance as of June 2020. MSME credit standing at INR 15.31K crore constitutes only 17% of the credit portfolio in the top 8 auto clusters and witnessed a Y-o-Y growth of 2.3% as of June 2020.