Amid rise in Mudra loan NPAs, finmin to meet PSB CEOs to take stock

Amid rising non-performing assets from loans sanctioned under the Pradhan Mantri Mudra Yojana (PMMY) and slowdown in credit offtake in the current financial year, the finance ministry has called a meeting with the managing directors and chief executive officers of public sector banks to discuss these issues.

Minister of State for Finance, Bhagwat Karad will meet the PSB CEOs on September 16 in Aurangabad to discuss the issues with Mudra loans. Another issue that will be discussed is ‘rationalisation of bank branches and opening of bank branches after banks' merger’, according to a communication send by the finance ministry to the bank CEOs, which has been reviewed by Business Standard. Also, issues regarding banking services in rural areas and implementation of loans extended under Covid-19 packages will also be discussed with bankers.

Under the Mudra scheme, loans of upto Rs 10 lakh are extended to non-corporate, non-farm, small and micro enterprises.

There has been a steady rise in NPAs from Mudra loans in the last few years. According to a report prepared by the Maharashtra State Level Bankers’ Committee (SLBC), non-performing assets in Mudra loans were 22% in the state as on June 30, 2021. Out of the outstanding amount of Rs 24,850 crore, Rs 5,521 crore was classified as non-performing, according to the SLBC report.

There has been a slowdown in the disbursement of Mudra loans in the current financial year, in line with the overall credit growth situation. At all India level, for the current financial year, banks disbursed Rs 73,335.51 crore under the PMMY scheme till August 27. In the previous financial year, the total amount disbursed was Rs 3.12 trillion as compared to Rs 3.29 trillion in 2019-20.

Over 300 million loans amounting to around Rs 16 trillion have been sanctioned under PMMY since the inception of the scheme in April, 2015.

Overall loan growth has been tepid in the current financial year. As compared to Rs 5.8 trillion loan growth in FY21, there was a contraction of Rs 52,046 crore till August 27.

In a written reply to Rajya Sabha in March 2020, the then Minister of State for Finance, Anurag Thakur said NPAs under PMMY as on March 31, 2019 for PSBs were 3.76% of the amount disbursed under the scheme.

PSBs' total NPAs under the scheme for 2018-19 were Rs 11,483.42 crore, for 2017-18 were Rs 7,277.31 crore, and for 2016-17 - 3,790.35 crore, the minister had said, indicating steady rise in Mudra bad loans.

Branches rationalised

Following the merger of 13 public sector banks into four in the last two years, merged banks have cut their branch presence, Reserve Bank of India data showed.

Rationalisation and opening of bank branches after bank merger is another issue that the finance minister will take up with the banks' top bosses on Thursday.

Oriental Bank of Commerce and United Bank of India were merged with Punjab National Bank, with effect from April 1, 2020. Similarly, Allahabad Bank was merged with the Indian Bank, Andhra and Corporation Bank were merged with Union Bank of India and Syndicate Bank was merged with Canara Bank. All these mergers were effective April 1, 2020.

Vijaya Bank and Dena Bank were merged with Bank of Baroda effective April 1, 2019. These three banks had a total branch presence of 8,844 before the merger, which was reduced to 8,192 as of June 2021.

Similarly, PNB-UBI-OBC had a total branch network of 10,934 as of March 2020 which was reduced to 10,640 as of June 2021.

Only Indian Bank’s branch presence increased post the merger with Allahabad Bank.

Not only these merged banks, but public sector banks have been cutting down their branch presence in the last four years. Private banks, on the other hand, expanded their overall branch network rapidly and their semi-urban and rural presence has grown commensurately.

As a result, public sector banks have lost market share rapidly to their private sector counterparts in the last five years. Between 2015 and 2020, public sector banks' loan market share fell from 74.28% to 59.8% while their deposit share dropped from 76.26% to 64.75%. Private sector banks' gain in market share was commensurate with the fall of public sector counterparts.

Loan disbursed under PMMY
 

2021-22: Rs 73345.32 crore (as on 27/08/21)

2020-21: Rs 311754.47 crore

2019-20: Rs 329715.03 crore

2018-19: Rs 311811.38 crore

2017-18: Rs 246437.40 crore

2016-17: Rs175312.13 crore

2015-16: Rs 132954.73 crore