A source told FE that all aspects of the Mudra scheme — including geographical reach, bad loans and need for better features, enhanced access to the intended beneficiaries — are being reviewed by PSBs.
The finance ministry has asked state-run banks to review their Mudra loans, with an aim to launch a revamped version of the scheme that is meant to finance small and budding entrepreneurs, amid fears of a spike in non-performing assets (NPAs) in these accounts.
A source told FE that all aspects of the Mudra scheme — including geographical reach, bad loans and need for better features, enhanced access to the intended beneficiaries — are being reviewed by PSBs. This is part of the ongoing brainstorming exercise by the state lenders to ease the flow of credit and support the government’s efforts to turn India into a $5-trillion economy in the next five years.
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The Mudra loan limit for small and budding entrepreneurs could also be doubled from the current level of rS 10 lakh, he added. While the Mudra scheme has improved the access to credit at affordable rates (8-12%) for people from even vulnerable sections who used to rely heavily on informal channels such as money lenders, experts have warned of potential NPA risks, as most of these loans are collateral-free.
Already, NPAs in Mudra loans jumped to 5.28% of the disbursement as of March 2019, against 3.96% a year earlier. While the bad loan ratio is still much lower than banks’ total NPA level, the sharp spike in FY19 has raised eyebrows.
This fiscal, the lenders sanctioned Rs 83,758 crore as of August 23 and disbursed rS 80,030 crore, as per the latest official data. In the last fiscal, the lenders had breached the Rs 3-lakh crore target by disbursing almost Rs 3.12 lakh crore. This year, they are targeting to breach the FY19 level.
Mudra loans, of late, have raised concerns about becoming the potential source for the next bad loan crisis, along with some other schemes for MSMEs and farmers. Late last year, former RBI governor Raghuram Rajan warned that credit targets were sometimes achieved by abandoning appropriate due diligence. “Both Mudra loans as well as the Kisan Credit Card, while popular, have to be examined more closely for potential credit risk. The Credit Guarantee Scheme for MSME run by SIDBI is a growing contingent liability and needs to be examined with urgency,” Rajan
said in a 17-page note to the Parliamentary Estimates Committee.
The government has, however, pointed out that non-performing assets (NPAs) in the Mudra loans are still much lower than overall bad debt. State-run banks, which account for an overwhelmingly large proportion of the overall NPAs, seem to have performed well in this scheme. In a reply to a question in the Lok Sabha earlier this year, Shiv Pratap Shukla, then minister of state for finance, had said: “As reported by public-sector banks, total NPAs for loans extended under Pradhan Mantri Mudra Yojana during the last three years were Rs 596.72 crore (2015-16), Rs 3,790.35 crore (2016-17) and Rs 7,277.31 crore (2017-18), respectively. PMMY NPAs as on 31st March, 2018 for PSBs were 3.43% of the amount disbursed under the scheme.”
The scheme, launched in April 2015 by Prime Minister Narendra Modi, aims to offers loans of up to Rs 10 lakh to non-corporate and non-farm small/micro enterprises. However, some activities allied to agriculture — such as dairy, poultry and bee-keeping — are also covered under it. Mudra loans have three categories — Shishu, Kishore and Tarun. Shishu covers loans of up to Rs 50,000, Kishore covers above Rs 50,000 and up to Rs 5 lakh and the Tarun category provides loans of above Rs 5 lakh and up to Rs 10 lakh.