Mudra loans: PSBs on a sticky wicket as NPAs surge

Public sector banks (PSBs), which have been the main channel for the distribution of Mudra loans, have seen their NPAs spike in FY20 even as disbursements saw an appreciable increase.

Non performing assets (NPAs), as a percentage of Mudra loans disbursed by PSBs, increased to 4.80 per cent in FY20 from 3.75 per cent in FY19.

Loan disbursements by PSBs under the Mudra scheme touched ₹3,92,437 crore during FY20 and NPAs stood at ₹18,836 crore. For the previous year, the loans disbursed stood at ₹3,06,489 crore and NPA was at ₹11,483 crore. In FY18, Mudra loan disbursements stood at ₹2,12,205 crore with NPAs at ₹7,277 crore.

Under the Pradhan Mantri Mudra Yojana (PMMY), institutional credit up to ₹10 lakh is provided for entrepreneurial activities to micro/small business units. As of September 4, over 25.32 crore loans amounting to ₹12.91 crore have been extended by Member Lending Institutions under PMMY since its inception, official data submitted to Parliament showed.

Mudra loans are collateral-free loans that come under three categories — Shishu (up to ₹50,000); Kishore (between ₹50,000 and ₹5 lakh) and Tarun (up to ₹10 lakh).

Many bankers in private held that the latest NPA ratio made public on Mudra loans was on the higher side, given that the scheme was only a few years old.

The latest NPA ratio for Mudra loans may not also give the entire picture on the health of MSMEs, given the regulatory forbearance (non recognition of NPAs and one-time restructuring facility) extended to this segment since 2019, they said. A bulk of the stress came from the Shishu category, they added.

One will have to wait for the moratorium to end and assess the impact of the one-time restructuring before coming to any conclusion on the health of Mudra loan borrowers, they added.

Meanwhile, Anurag Singh Thakur, Minister of State for Finance and Corporate Affairs, said in a written reply that a number of steps have been taken by the government to improve the implementation of the Mudra scheme, including asking PSBs to regularly monitor the asset quality for small ticket size loans, including PMMY loans; make granular analysis of Mudra NPA accounts; improve underwriting standards and maintain regular contacts with PMMY borrowers. Thakur also said that State-wise NPA data under the scheme is not centrally maintained.

In view of the pandemic, the government had announced a slew of measures targeted at MSMEs, including launch of pre-approved loans under Emergency Credit Line Guarantee Sanction for sanction of ₹ 3-lakh crore to eligible MSMEs; launch of Credit Guarantee Scheme for Subordinated Debt for stressed MSME units to help sustain and revive MSMEs whose loan accounts have either become NPAs or are on the brink of becoming NPAs; and revision of the definition of MSMEs to allow more enterprises to avail benefits for MSMEs and to help existing MSMEs expand.

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