Finance ministry for caution on Mudra loans without stifling credit

New Delhi: In order to dispel fears about a build-up of bad loans in Mudra loan schemes, the finance ministry is likely to ask banks to take the usual precautions on disbursals of such loans to the refinancing agencies, but by ensuring that lending to the targeted beneficiaries are not choked.

“We tell the banks to be prudent and take commercially viable decisions in case of Mudra loans as well, decisions that is the thumb rule for any loan. Mudra loans NPAs at best could be under 3.5 per cent of total outstandings of Rs 2. 4 lakh crore of the PSBs in fiscal 2018, which is not alarming or worrisome,” a finance ministry official said.

Mudra loans form part of the MSME loans portfolio of the banks, and because of very shaky nature of assets and lack of collaterals, loans to micro, small and medium enterprises (MSMEs) bring higher gross non-performing assets, or NPAs. However, for most PSBs, MSME loans form a fraction of their total loan basket. The MSME NPAs currently stand at 10-12 per cent and the book is from Rs 50,000 crore to Rs 2 lakh crore for the PSBs.

There are no separate official figures on the Mudra loan NPAs from the Reserve Bank of India, though some estimates say it may have crossed Rs 10,000 crore wit­hin three years of the launch of the scheme till October 2018. Another estima­te says public sector ba­nks’ (PSBs) NPAs from this portfolio has risen from Rs 3,790.35 crore in March 31, 2017 to as much as Rs 7,277.31 crore in March 31, 2018.

Apart from PSBs, Mudra loans are disbursed by private banks, microfinance institutions, regional rural banks, self-finance institutions and other member lending institutions. As per the Pradhan Mantri Mudra Yojana annual report for 2017-18, NBFCs sanctioned Mudra loans of over Rs 27,000 crore in FY18, three times their target of Rs 9,050 crore. By a Lok Sabha reply, over three crore loans, amounting to Rs 1.44 lakh crore, have been extended by private sector banks as on December 21, 2018, since the inception of the scheme in 2015.

Mudra stands for Micro Units Development and Refinance Agency. According to the Mudra annual report of 2017-18, an amount of Rs 5.71 lakh crore has been sanctioned under the programme, benefitting nearly 12.27 crore loan accounts, in the first three years of the programme.

Under the scheme launched on April 8, 2015, banks are required to finance micro and small entrepreneurs for up to Rs 10 lakh. Loans can be granted under three categories: up to Rs 50,000 under ‘Shishu’, Rs 50,001-Rs 5 lakh under ‘Kishore’ and Rs 5,00,001-Rs10 lakh under ‘Tarun’ categories. The interest rates on these loans are in the 8-12 per cent range.