Small Business Loan Defaults Double Year After GST, Note Ban Jolts, Says Report

New Delhi: Small business owners continue to feel the pressure of demonetisation and GST as their loan default margin doubled over the last year — from Rs 8,249 crore by March 2017 to Rs 16,118 crore by March 2018, according to figures revealed by an RTI filed by Indian Express.

In its RTI reply, the RBI said that the bulk of loan defaults, which rose from March 2017, is accounted by public sector banks which had a share of 65.32 percent in outstanding loans to small units, down from 66.61 per cent in the previous year.

In a separate study on micro, small and medium enterprises (MSME) released two weeks ago, the RBI acknowledged that the sector has witnessed two major recent shocks — demonetisation and GST.

“For instance, contractual labour in both the wearing apparel and gems and jewellery sectors reportedly suffered as payments from employers became constrained after demonetisation.

“Similarly, the introduction of GST led to increase in compliance costs and other operating costs for MSMEs as most of them were brought into the tax net,” says the MSME study by Harendra Behera and Garima Wahi of RBI’s Monetary Policy Department.

In a recent survey conducted by SMERA Ratings Ltd, more than 60 per cent of respondents felt that their systems were not ready for the new tax regime.

A study by Small Industries Development Bank of India (SIDBI) indicated that post demonetisation and GST, the relative credit exposure initially declined for most MSMEs but recovered fully by March 2018.

During demonetisation, many smaller districts, which were witnessing higher growth, felt greater shock compared to larger centres, the MSME study by RBI has said.

According to this study, credit growth fell significantly and turned negative during November 2016-February 2017. Therefore, it said, it seems demonetisation accentuated the slowdown in credit growth, particularly to the industrial sector. However, the credit growth to the MSME sector recovered after February 2017 to reach an average of 8.5 per cent during January-May 2018.