The PM Mudra Yojana (PMMY), which was launched in 2015, had a rocky start. Although well-intentioned and aimed at supporting small enterprises, Reserve Bank of India (RBI), in late 2016, red-flagged the rising non-performing assets (NPA). Shortly after that, State Bank of India found that close to 15% of its Mudra loans had turned bad. Acting quickly, the lender altered the lending model to an e-Mudra one by digitising the entire process. Then SBI chairman Rajnish Kumar said at the time that most of the bad loans were found to be in the under Rs 50,000 bucket which was pretty much true for most lenders. However, SBI put in some checks and balances following which the NPA ratio fell to less than 10% for new loans.
For Mudra loans in aggregate, available data suggests that there has been a marked improvement with the quantum of toxic assets coming down. At the end of March, 2022, the NPAs were just 3.17% while at the end of June 2022, they were 3.3%. That is pretty impressive given that the total amount disbursed under the scheme over eight years is estimated to have crossed Rs 20 trillion in FY23 across an estimated 400 million borrowers, compared with a cumulative Rs 17.35 trillion at the end of FY22. To be sure, the overall NPA number does mask the high-level of bad loans in a few states like Maharashtra where it was more than 15% at the end of June 2022.
Also read: Feeding inflation
Nonetheless, when compared with the huge loan losses that banks have run up in case of large companies—at one point the NPAs were over 10% of the outstanding credit base—it must be said that lending to small enterprises has been a better experience. Even if banks’ NPAs on this count rise a little, it would be more justified than losing thousands of crores on a single corporate account. Recent data suggests that banks and non banking financial companies (NBFC) and micro finance institutions (MFI) have been focusing more on loans of above Rs 50,000. While they disbursed a combined Rs 4.3 trillion in FY23, a jump of 27% over the previous year, the number of loans given went up by only 9% to 58.8 million. It is just as well that loans in the higher value categories—Kishore and Tarun—seem to be on the rise. It is a fact that Rs 50,000 doesn’t really amount to much these days when it comes to running a business. The risks would probably be lower with loans of a bigger value.
Also read: 20 applications for insurance firms in pipeline: Panda
It is an encouraging sign that the gap between sanction and disbursement under Mudra has shrunk to an all time low of 1.35%. In earlier years, the gap was between 2.2% and 3.3%. The benefits of supporting entrepreneurship at the lower levels cannot be overstated. More businesses create employment opportunities, make more households independent and further financial inclusion. As we have seen over the past decade, access to credit empowers women and frees borrowers from the clutches of moneylenders; the self-help groups that MFIs lend to have worked well. It is important that small and micro-entrepreneurs are familiar with digital services as that would make financial transactions more affordable and the business more resilient. It would also give lenders more confidence and vest entrepreneurs with more bargaining power.