Banks and financial institutions stepped up lending under the Pradhan Mantri Mudra Yojana (PMMY) in the month of March to meet targets for Mudra loans. In one month between February 22 and March 22, the disbursement under Mudra loans touched a record of Rs 71,079.67 crore, against the monthly average disbursement of Rs 22,812.38 crore recorded during the last financial year, according to latest government data.
The sharp surge in Mudra loans, meant for micro and small entrepreneurs, comes in the backdrop of ongoing general elections. Government sources said banks typically step up lending under the scheme towards the end of the year.
In the Union Budget 2018-19, the government had given a target of Rs 3 lakh crore for lending under Mudra to member lending institutions associated with Micro Units Development & Refinance Agency Ltd (MUDRA).
Banks and MFIs draw refinance under the scheme after becoming member-lending institutions (MLIs) of MUDRA. The number of Mudra loans sanctioned also surged to 5.41 crore as on March 22, 2019, up from 4.81 crore in the previous fiscal year.
PMMY - one of the flagship schemes of the NDA government - is intended to refinance collateral-free loans of up to Rs 10 lakh given by lending institutions to non-corporate small borrowers, for income-generating activities in the non-farm segment. As on March 22, 2019, total disbursements for Mudra loans were Rs 2.73 lakh crore while sanction amount stood at Rs 2.82 lakh crore.
Loans under the scheme have been bracketed in three categories: Shishu loans are up to Rs 50,000; Kishor loans are between Rs 50,001 and Rs 5 lakh; and Tarun loans of Rs 5-10 lakh. As bank push to achieve Mudra loan targets set out by the government, there have been concerns of rising NPAs. "Both Mudra loans as well as the Kisan Credit Card, while popular, have to be examined more closely for potential credit risk," Raghuram Rajan, Former Governor of the Reserve Bank of India said last year.
In the first nine months of the current financial year 2018-19, NPAs under the scheme has jumped almost 53 per cent to Rs 14,930.98 crore compared with Rs 9,769.99 crore in 2017-18. Data obtained by The Indian Express under the RTI Act from MUDRA shows that the total number of Mudra loan NPA accounts increased from 17.99 lakh on March 31, 2018 to 28.83 lakh as on December 31 2018.
Issues over adequate checks and balances
As banks stepped up disbursements of Mudra loans in March last year to achieve lending targets set out by the government, there are issues of having adequate checks and balances in such targeted lending. The loans are aimed at helping micro and small entrepreneurs who typically borrow from the moneylenders. Along with increase in disbursements under the scheme, the non performing assets in these loans are also rising each year.
However, the government has maintained that NPA ratio for Mudra loans remains reasonable. "MUDRA loans remain mostly unaffected by increasing number of bad loans in PMMY. While Gross NPA in India across all sectors crossed 10% in FY 2017-18, NPA level under PMMY is only 5.38% as on March 31, 2018," MUDRA said in its annual report 2017-18.
To study the impact of PMMY, MUDRA is appointing an agency to study whether Micro Finance Institutions were able to raise additional debt funds for on-lending to Mudra beneficiaries.
It will also issues like whether MUDRA was able to provide low cost funds to MFIs and NBFCs, changes in the social and economic profiles of beneficiaries, and the sociopolitical impact of the scheme on the micro entrepreneurs/units.