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Banks red-flag: Loans to street vendors in pandemic turning NPAs

Launched in June to help vendors amid the pandemic, the PM SVANidhi scheme is a micro-credit facility that provides street vendors a collateral-free loan of Rs 10,000 at concessional rates of an estimated 7.25%.

Written by Sandeep Singh , Sunny Verma | New Delhi |
Updated: January 21, 2021 7:35:29 am
A street food vendor prepares an order in Noida (Photographer: Prashanth Vishwanthan/Bloomberg)

After being nudged by municipalities to step up loan disbursements under the PM Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi) programme, banks are writing back to report that many of these collateral-free loans are turning into non-performing assets (NPAs). Some banks are asking local authorities — who pushed for these loans — to help recover them.

Launched in June to help vendors amid the pandemic, the PM SVANidhi scheme is a micro-credit facility that provides street vendors a collateral-free loan of Rs 10,000 at concessional rates of an estimated 7.25%.

On timely or early repayment of the loan, an interest subsidy at 7% per annum is credited to the bank accounts of beneficiaries through Direct Benefit Transfer on a six-monthly basis.

Despite this interest subvention – making this an effectively interest-free loan — many accounts have turned NPAs.

This has been red-flagged in a recent letter written by a State Bank of India chief manager to the Municipal Commissioner of Burhanpur in Madhya Pradesh.

In the letter, the SBI official has stated that the bank sanctioned more than 160 PM-SVANidhi loans to urban street vendors on the recommendation of Nagar Nigam Burhanpur.

Of these, many borrowers did not submit “a single instalment in their loan accounts,” the letter said. As loans under the scheme have no collateral, banks typically have no recourse in case of default.

“Therefore, we need your cooperation in recovery of NPA loan accounts,” the bank wrote to the municipal commissioner on December 19, 2020.

Banks classify assets as NPA if the interest is due beyond 90 days.

Responding to a set of queries sent by The Indian Express, an SBI spokesperson said that due diligence was done. “As per the guidelines, Urban Local Bodies (ULBs) and Town Vending Committees (TVCs) are responsible for identifying eligible borrowers and issue Certificate of Vending, Identity Card and Letter of Recommendation to them. ULBs and TVCs verify the borrowers’ details, after which the application moves to the concerned lending institution for loan sanctions. Bank involves ULBs to ensure timely recovery of the loans by the borrowers. The loan cases are sanctioned and disbursed only after completing all the due diligence as per the Bank’s Loan Policy.”

In another letter, written by Indore municipal commissioner to private sector banks in the city, the commissioner said that while Indore was targeted to provide loans to 44,874 street vendors, till date (around December 20) only 13,000 were beneficiaries.

The commissioner pointed out that “dissatisfaction” was raised over the performance of private banks at a high-level meeting. “Every bank branch falling in the municipal border limitations (has) been given a target to provide loans of Rs 10,000 under the scheme to 50 street vendors,” the commissioner noted and added that the target has to be completed by December 28, 2020.

While both these instances pertain to Madhya Pradesh, bankers have told The Indian Express that local authorities across states have been putting pressure on lenders to sanction and disburse loans under the scheme.

Under the scheme, all vendors who have been vending from or before March 24, 2020 and with a certificate of vending can avail of the loan. The vendors can avail a working capital loan repayable in monthly instalments in one year.

Banks have sanctioned a total number of 17.93 lakh loans applications with sanction amount at Rs 1783.17 crore till December. Disbursements have been made to 13.27 lakh beneficiaries, with Rs 1306.76 crore worth of loans disbursed, as per latest available government data.

SBI is the largest lender under the scheme, followed by Union Bank of India, Bank of Baroda and Bank of India. The participation of private banks has been marginal.

Fruits and vegetable sellers are the largest borrower category, followed by fast food and food items; and cloth and handloom products. Banks have received a total of 32.66 lakh loan applications under the scheme.

The government expects over 50 lakh vendors, including hawkers, thelewala and rehriwala, to benefit from this scheme.

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