Customer connect can help avert MUDRA loan crisis, says SBI Dy MD

In August, the Finance Minister had said that public sector banks' non-performing assets (NPA) in the MUDRA loan category stood at 3.4 per cent in FY24, compared to 4.7 per cent in FY21

MUDRA loans don’t pose a threat to banks’ balance sheets and the lenders are well prepared to take steps to deal with the impact of NPAs, a senior State Bank of India (SBI) official said on Thursday.

Ruma Dey, Deputy Managing Director & Group Compliance Officer, SBI also asked bank officials to strike a chord with customers at the ground level, which will help them check non-performing assets (NPA).

Public sector bank’s NPA in Mudra loan has come down to 3.4 per cent in FY24, from a high of 4.77 percent in 2020-21, 4.89 percent in 2019-20. Union Finance Minister Nirmala Sitharaman has said this in response to a query in the Lok Sabha.

In contrast, the gross NPA of scheduled commercial banks in India was 2.8% as of March 2024.

SBI’s Dey, who was addressing an Assocham event in Mumbai, asked bank officials to keep their ears to the ground to check NPAs.

“For MUDRA, the most important thing is to connect with the customer. What happens in the public sector banks is that, once we give the loan, we do not really have that connect with them, till it becomes an NPA. When it becomes the NPA, SMA, we start running after the customer, and then we find that there is, either the customer is not doing well, or he is not in place. However, if we have that connect with the customer, at the ground level, then I think this crisis can definitely be avoided,” Dey said.

She also said that there is no commensurate punishment if someone has taken a loan particularly to defraud and if people try to take advantage which will lead to frauds.

In response to a question if NPAs may turn into a crisis, Dey said it will not.

“However, a genuine MSME customer, who is doing a genuine business, definitely there will be, banks are there to support them. So I don't think that there will be such a big crisis. We will be able to take steps to reduce the impact of such events.”

MUDRA loans are given in three categories. ‘Sishu’ up to Rs 50,000, ‘Kishore’ above Rs 50,000 and up to Rs 5 lakh and Tarun is above Rs 5 lakh and up to Rs 10 lakh. In the Union Budget for FY25, Sitharaman announced that the limit for MUDRA loans will be enhanced from Rs 10 lakh to Rs 20 lakh.

Public sector banks are the main partners in channeling MUDRA loans. According to SBI’s annual report, the lender had disbursed over Rs 49,000 crore in the category during FY24 as compared to Rs 39,000 crore MUDRA loans in FY23. In FY21, it had disbursed Rs 347.83 crore.