The finance ministry has asked the banks to review all loans sanctioned under the Pradhan Mantri Mudra Yojana (PMMY or Mudra loan scheme), as the non-performing assets (NPA) have crossed Rs 11,000 crore within three years of the launch of the scheme. The Morning Standard had, quoting an RTI reply, reported on October 21 that PSBs’ NPAs have risen to Rs 11,000 crore by August 3, 2018.
“The Mudra loan scheme has done very well. However, the rising NPAs under the scheme are a matter of concern. It is already three years and there is a need to review how the banks are sanctioning the loans. The (finance) ministry has raised its concern with the banks,” a senior financial ministry official told TMS.
The RBI has already flagged its concerns regarding the bad loans to the government.
As per the government’s own admission, the total disbursements under the scheme stood at Rs 2.53 lakh crore in financial year (FY) 2017-18 as compared to Rs 1.80 lakh crore in FY 2016-17 and Rs 1.37 lakh crore in FY16. More than 4.81 crore micro borrowers have benefited from PMMY during FY 2017-18 and a majority of them has been women and those from weaker sections of the society. Under the scheme launched on April 8, 2015, banks are required to finance micro and small entrepreneurs for up to `10 lakh. Loans can be granted under three categories: up to `50,000 under ‘Shishu’, `50,001-`5 lakh under ‘Kishore’ and `5,00,001-`10 lakh under ‘Tarun’ categories. The interest rates on these loans are in the 8-12 per cent range.
However, to push the scheme, there had been overemphasis on the banks to meet loan disbursal targets. In the race to meet the target, the credentials of loan-seekers were not being properly verified and in many instances, loans were being given without any collateral or security, making it difficult for banks to go after defaulters.
Apart from Public Sector Banks (PSB), Mudra loans are disbursed also by private banks, microfinance institutions and other Member Lending Institutions.As per the PMMY annual report for 2017-18, NBFCs sanctioned over `27,000 crore of Mudra loans in FY18, three times their target of `9,050 crore. According to a Lok Sabha reply, over 3 crore loans amounting to `1.44 lakh crore have been extended by private sector banks as on December 21, 2018, since the inception of the scheme. The Mudra loan NPAs of PSBs rose from `3,790.35 crore in March 31, 2017, to `7,277.31 crore in March 31, 2018.
What went wrong?
In order to push the scheme, there had been an overemphasis on banks to meet loan disbursal targets. In the race to meet the target, the credentials of loan-seekers were not being properly verified and in many instances, loans were being given without any collateral or security, making it difficult for the banks to go after defaulters.