Public sector banks (PSBs) have seen a sharp surge in the amount of Mudra loans turning into non-performing assets (NPAs) over the last three years. NPAs in Mudra loans has spiked to Rs 18,835 crore in 2019-20, from Rs 11,483 crore in 2018-19 and Rs 7,277 in 2017-18, according to Finance Ministry data. Bad loans jumped along with a steady rise in disbursements by PSBs.
Mudra loan disbursements by state-owned banks rose to Rs 3.82 lakh crore in 2019-20, from Rs 3.05 lakh crore in 2018-19 and Rs 2.12 lakh crore in 2017-18. NPAs as a percentage of total loans rose to 4.92 per cent in 2019-20 from 3.42 per cent in 2017-18.
Since the launch of the Pradhan Mantri Mudra Yojana (PMMY) on April 8, 2015, loans disbursed by banks and microfinance institutions for non-corporate small borrowers and for income-generating activities in the non-farm segment are termed as Mudra loans. In the current year, as of September 11, loans worth Rs 59,192 crore have been disbursed.
While these are essentially collateral free loans up to Rs 10 lakh per account, credit extended against purchase of vehicles or equipment or machinery have an in-built collateral. Banking industry sources said loans that are typically backed by assets such as vehicles have lower NPA rate than those given without any collateral. The Reserve Bank of India (RBI) has been highlighted the rising stress under Mudra loans, cautioning them on a better loan appraisal and monitoring.
“The Mudra is a case in point. While such a massive push would have lifted many beneficiaries out of poverty, there has been some concern at the growing level of non-performing assets among these borrowers. Banks need to focus on repayment capacity at the appraisal stage and monitor the loans through their life cycle much more closely,” RBI Deputy Governor MK Jain had said last November.
In June, the government approved a scheme for interest subvention of 2 per cent for a period of 12 months, to all Shishu loan accounts. Under PMMY, loans for income generating activities up to Rs 50,000 are termed as Shishu loans. As on March 31, 2020, about 9.37 crore Shishu loans worth Rs 1.62 lakh crore were outstanding.
Interest rate on these loans ranges from 8-10 per cent. Apart from PSBs, private banks, micro-finance institutions and other member lending institutions (MLIs) also grant Mudra loans. MLIs extending these loans can refinance them from Micro Units Development and Refinance Agency Ltd.