New-to-credit (NTC) entities could possibly drive MSME credit growth in the next phase, according to a report by SIDBI and TransUnion CIBIL. The report titled “MSME Pulse-August 2023” contends that 61% of the originations between Q4 of 2020 and Q4 of 2023 with loan amounts within INR 1 crore were to entities that were first-time borrowers.
Further explaining the share of New-to-credit (NTC) entities in the originations within the same period, the report elucidates that NTC had a share of 75% in loan originations with the amount less than INR 10 lakhs. The share of NTC entities in originations for loan amounts ranging from INR 10 lakhs to 50 lakhs stands at 40%, and 16% for loan amounts ranging from INR 50 lakhs to 1 crore.
Analysing the NTC borrowers, the report found out that most of the borrowers were Retail Traders and more than 50% of the NTC borrowers started borrowing with small-ticket size loans. It also mentions that entities that took a loan with amounts ranging from INR 50 lakhs to 1 crore went on to avail more loans later on as compared to entities that took a loan with an amount less than INR 50 lakhs.
According to the report, Public Sector Banks were the largest lenders for loan amounts less than INR 50 lakhs, while Private Sector Banks took the lead for loan amounts ranging from INR 50 lakhs to 1 crore.
Further, the report also mentions that there has been a drop in the delinquency rates in loans to MSMEs with the largest drop observed in the NBFC sector.
About NTC entities
NTC, or New-to-Credit entities are entities that have hitherto not borrowed from the formal channels for credit and are first-time borrowers. These may be entities that started functioning recently, or those that have been existing for a relatively longer time but have refrained from availing credit products from Financial Institutions.
NTCs offer an avenue for deeper credit penetration as they constitute the untapped market and hold the potential to outperform existing credit-availing businesses while serving the larger goal of financial inclusion. Given the opportunity they pose for lenders, NTCs can be a target market for lenders aiming for larger growth in their books.
