RBI red flags rising bad loans taken under Mudra scheme

The Mudra loan scheme was launched in 2015 to help the highly under-funded small and medium industries with cheap bank loans.
Reserve Bank of India (File Photo | PTI)
Reserve Bank of India (File Photo | PTI)

MUMBAI:  RBI Deputy Governor Mahesh Kumar Jain on Tuesday said banks needed to focus on the repayment capacity of borrowers at the appraisal stage itself and monitor loans through their life cycle closely.Speaking in the context of microfinance at the Sidbi National Microfinance Congress 2019, Jain flagged concerns about bad loans (NPA—non performing assets) in the Mudra loans extended by banks, small finance banks, and micro financiers under the Pradhan Mantri Mudra Yojana (PMMY) launched in 2015.

“Mudra is a case in point. While such a massive push would have lifted many beneficiaries out of poverty, there have been some concerns at the growing level of non-performing assets among these borrowers,” said Jain.Finance Minister Nirmala Sitharaman, in a reply to a question in the Lok Sabha, had said that the total NPAs as a percentage of credit disbursed showed an increase from 2.57 per cent in financial year 2017-18 to 2.68 per cent (provisional) in 2018-19.

Close to six crore loans had been sanctioned, with the total amount sanctioned standing at `321,722.79 crore at the end of 2018-19, the Mudra website showed. Contrary to that were reports that a RTI query had revealed that Mudra NPAs rose 126 per cent in FY19  to `16,481.45 crore from `9,204.14 crore in the previous year.

“In order to play a more catalytic role, MUDRA would require enhancement of in-house (or outsourced) capabilities, including underwriting, risk management, fundraising based on its own AAA rating and sharper focus on emerging trends in the market. A reimagining of MUDRA is necessary, including assessing the rationale for continuing it as a subsidiary of SIDBI,” the RBI-appointed committee on MSME (Micro, Small and Medium Enterprises) had said in its report submitted in June. It had also recommended doubling the collateral-free loans, including Mudra, to `20 lakh.

Systemic risks may arise from unsustainable credit growth, increased interconnectedness, pro-cyclical and financial risks manifested by lower profitability, Jain said. He also said that the improved digital footprint created by GST had made MSME clients attractive for lenders.

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