Worries as NPAs under Mudra scheme rise to 5% for public sector banks

The NPAs of public sector banks (PSBs) under the Mudra scheme stood at 4.9 per cent in 2019-20 - a big jump from 3.7 per cent in 2018-19 and 3.4 per cent in 2017-18

Non-performing assets for loans disbursed by state-owned banks under the Pradhan Mantri Mudra Yojana (PMMY) is on an upward trajectory. Bad loans soared to around 5 per cent of the total disbursed amount in 2019-20, Minister of State for Finance Anurag Thakur informed Parliament earlier this week.

NPAs of public sector banks (PSBs) under PMMY stood at 4.9 per cent in 2019-20 — a big jump from 3.8 per cent in 2018-19, and 3.4 per cent in 2017-18. The government launched the Mudra scheme in April 2015 to give unsecured loans of up to Rs 10 lakh to small enterprises. Since its inception, over 253 million loans, amounting to Rs 12.9 trillion, have been given out under the scheme.

In a written response, Thakur said NPAs of PSBs under PMMY rose to Rs 18,836 crore in 2019-20, compared to Rs 11,483 crore in 2018-19, and Rs 7,277 crore in 2017-18. This was corresponding to Rs 3.82 trillion disbursed by PSBs in 2019-20, compared to Rs 3.05 trillion in 2018-19 under PMMY.

But this data may not present the complete picture about the depth of the NPA problem in PMMY. This is because the government didn’t provide any data on the proportion of bad loans in relation to total credit outstanding – a yardstick followed by most banks while reporting NPAs. Also, the government only provided data related to PSBs, whereas the Mudra scheme covers non-banking financial companies and the private sector lenders, too.

Thakur said the government had asked PSBs to “regularly monitor asset quality for small ticket loans, including PMMY loans, make granular analysis of Mudra NPA accounts, improve underwriting standards, and maintain regular and intensive contacts with PMMY borrowers”.

In November, the Reserve Bank had raised concerns about the “growing level of NPAs” under the Mudra scheme.

Despite rising NPAs, documents reviewed by Business Standard show that the government has set strict targets for banks to meet under the Mudra scheme.

“The department of financial services has informed pan-India PMMY targets for 2020-21 to all PSBs and private sector banks… Joint secretary, DFS, and the government advised member banks to mark it as an area of focus and comply urgently,” according to the minutes of the meeting of the state-level banking committee (SLBC) of Maharashtra held on August 28.

In the SLBC meeting, concerns were raised over rising NPAs under the Mudra scheme, particularly that of State Bank of India (SBI), which has seen more than half of its loan portfolio under the scheme turn bad in Maharashtra. 

“SBI has reported 58 per cent NPAs under Mudra loans; however, SBI informed that these loans in Mudra pertaining to allied activities under agriculture sector. SBI has been advised to find reasons and come up with focused action plan to reduce NPAs under Mudra,” the minutes of the meeting read.

SBI Chairman Rajnish Kumar had said in April that 15 per cent of Mudra loans by the country’s largest bank were NPAs. 

Maharashtra, the fourth highest state in terms of loans disbursed under the Mudra scheme, saw its NPA levels touch 15 per cent of the credit outstanding amount at the end of June. 

Former RBI governors Urjit Patel and Raghuram Rajan have also expressed worry about the Mudra scheme, particularly government’s target-setting practice and the rising bad loans.