Mudra loans — small ticket loans for India’s informal sector — are showing signs of trouble. For instance, Mudra non-performing assets (NPA) nearly doubled in FY18, rising 92 per cent, while advances grew by 40 per cent over FY17. A year before, in FY16, bad loans jumped 5-fold, while loan disbursements saw a growth of a mere 31 per cent, according to data furnished by the Ministry of Finance.
Interestingly, bad loans of Pradhan Mantri Mudra Yojana (PMMY), aka Mudra loans, stood at 5.38 per cent as on March, 2018, against the banking sector’s gross NPAs of over 10 per cent. However, among PSBs, Mudra bad loans stood at 3.43 per cent of the amount disbursed as on March, 2018.
As per estimates, about 577 crore small businesses and micro units exist in the country, of which a majority are owned by individuals belonging to the scheduled caste, scheduled tribe or other backward classes. Of these, less than 5 per cent have access to formal credit, while others rely on informal sources to fund their businesses. The scheme was thus launched in 2015 to offer loans up to Rs 10 lakh to non-corporate, non-farm small and micro-enterprises. These were to be provided by commercial banks, regional rural banks, small finance banks (SFBs), cooperative banks, microfinance institutions and NBFCs.
During FY18, overall loans worth Rs 2.54 lakh crore were classified as Mudra loans, an increase of 41 per cent from Rs 1.80 lakh crore loans sanctioned in the last financial year. Interestingly, banks and financial institutions have exceeded the target set every fiscal in disbursing loans. For instance, in FY16 the target was set at Rs 1.2 lakh crore, while the actual disbursement stood at Rs 1.3 lakh crore. This fiscal, the target has been set at Rs 3 lakh crore.
Meanwhile, NBFCs sanctioned approximately Rs 27,000 crore of loans against Rs 92,492.68 crore sanctioned by state-run banks. However, annual growth in Mudra advances by NBFCs was faster, jumping three-fold last fiscal, compared to a 29 per cent increase by state-run banks during the period.
