Covid, lockdown hit MSMEs hardest, their bad loans spiked

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Covid, lockdown hit MSMEs hardest, their bad loans spiked

  • The slowdown in the economy in the wake of the Covid pandemic hit MSMEs the most despite a host of loan restructuring schemes and packages announced.
  • MSMEs loan defaults: rose by Rs 20,000 crore to Rs 1,65,732 crore as of September 2021 from Rs 1,45,673 crore in September 2020.
  • Bad loans of MSMEs now account for 9.6% of gross advances of Rs 17.33 lakh crore as against 8.2% in September 2020.

Non-performing Assets (NPAs)

  • NPA is any asset of a bank which is not producing any income.
  • In other words, a loan or lease that is not meeting its stated principal and interest payments.
  • NPA categories:
  1. Sub-standard: When the NPAs have aged <= 12 months.
  2. Doubtful: When the NPAs have aged > 12 months.
  3. Loss assets: When the bank or its auditors have identified the loss, but it has not been written off.

Micro, Small, Medium Enterprises (MSME’s)

  • These are entities that are involved in production, manufacturing and processing of goods and commodities.
  • The concept of MSME was first introduced by the government of India through the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006.
  • The services provided by the Ministry of MSME:
  1. Facilities for testing, training for entrepreneurship development
  2. Preparation of project and product profiles
  3. Technical and managerial consultancy
  4. Assistance for exports
  5. Pollution and energy audits.

Reason for defaults

  • Thousands of MSMEs either shut down or became sick after the government announced a nationwide strict lockdown in March 2020.
  • RBI and the government launched the Emergency Credit Line Guarantee Scheme (ECLGS) which provided Rs 3 lakh crore of unsecured loans to MSMEs and business.
  • The restructuring schemes and packages didn’t benefit thousands of units which were already in default.


  • The sector acts as the instrument of inclusive growth empowering the most vulnerable and marginalized groups and contributes over 28% of the GDP and almost 45% to the manufacturing output.
  • In order to govern the country in an inclusive manner, the government needs to take required measures to solve these NPA problems on an urgent basis.