Mudra loans giving headache to banks; NPAs surge alarmingly

Pradhan Mantri Mudra Yojana (PMMY), popularly known as MUDRA and launched 5 years back, is going to be a new headache for the banks. The loans given under the scheme are fast turning bad as non-performing assets (NPAs). While’s banking experts are suggesting the government to re-design the scheme and save banks from the burden of NPAs in this loan segment.

The banks who have fallen in line with the directed lending through MUDRA are now reportedly staring at outstanding loans worth over Rs. 8 lakh crore and the number of loan defaults is rising fast. Facts and figures available with the Greater Kashmir reveal that Punjab National Bank (PNB) is burdened with Mudra loan NPAs at over 20 per cent.

“The bank has sanctioned loans worth over Rs 20,000 crore. The current outstanding loans stand at Rs 10,702 crore as of September 2019. The gross NPAs during the period are at staggering 23 per cent,” said the report.

Sources reveal that the Mudra loan NPA situation is alarming at many other banks especially public sector banks. “The NPA level of Mudra loans at PSBs has surged from 5 per cent to 10 per cent in 2018-19.

Notably, with the alarming rise in Mudra loan NPAs, the RBI Governor Shaktikanta Das had earlier advised banks to be cautious and prudent in lending to small borrowers. Even the apex bank’s deputy governor M K Jain, a few days back, red-flagged the growing stress in the Mudra loans. He advised the banks to focus on repayment capacity at the appraisal stage and monitor the loans through the life cycle much more closely.

Notably, under the Mudra scheme small entrepreneurs are extended financial support in the form of loans up to Rs 10 lakh.

Meanwhile, in a written reply, Minister of State for Finance Anurag Singh Thakur informed the RajyaSabha that Scheduled Commercial Banks (SCBs) and Regional Rural Banks (RRBs) had reported that as of March 2019, “against a total amount of ?6.04-lakh crore disbursed by them under PMMY since the inception of the scheme, an amount of Rs.17,251.52crore had turned into NPAs, which is 2.86 per cent of the total disbursed amount.”

These figures are based on the loans disbursed by 46 SCBs, including those in the private sector.

SBI topped in disbursement with over Rs.1-lakh crore, but its NPA was 2.65 per cent. Among the private sector banks, Dhanalaxmi Bank and Federal Bank had the highest NPAs, at over 10 per cent.

RRBs’ NPA amount was over Rs.2,000crore, or 3.86 per cent of the total, said Thakur.

To another query, Finance Minister NirmalaSithraman said that from the inception of the scheme till October 25, 2019, over 20.65 crore loans involving a total disbursal of Rs.9.86-lakh crore had been extended to borrowers.

Remarkably, former RBI Governor RaghuramRajan was the first person to warn about the emerging NPA crisis in Mudra loans.

Meanwhile, banking experts suggest the government to overhaul the scheme immediately before it becomes too big to control and create a systemic crisis.