Lenders need to monitor Mudra loans closely amidst growing non-performing assets (NPAs) under the scheme, Reserve Bank of India (RBI) deputy governor MK Jain said on Tuesday.
"There is a need to focus on repayment capacity at the appraisal stage and monitor the loans through the life-cycle much more closely," Jain said, adding that while Mudra loans had given a "massive push" to lift beneficiaries out of poverty, there have been concerns about the growing level of NPAs. He was speaking at the inaugural session of the Small Industries Development Bank of India (SIDBI) National Microfinance Congress 2019.
Under the Pradhan Mantri Mudra Yojana, non-corporate, non-farm small/micro enterprises can avail loans up to Rs 10 lakh from commercial banks, regional rural banks, small finance banks, micro-finance institutions (MFIs) and non-banking finance companies (NBFCs). At the end of March 2019, NPAs in Mudra loans rose to 5.28% of disbursements made under the scheme from 3.96% a year ago, FE had reported in September.
Further, Jain said that the recommendations of the UK Sinha committee, which was created to suggest long-term solutions for the economic and financial sustainability of the micro, small and medium enterprises (MSME) sector, were being examined for implementation. Recommendations of the committee include setting up of a Rs 5,000-crore stressed asset fund for domestic MSMEs.
The deputy governor said that customers in the low-income group should be enabled to not merely avail offered products and services, but demand them according to their needs. Business collaboration among banks, NBFCs, MFIs and fintechs would be pivotal to accelerating financial inclusion through innovation, he said.
With the introduction of the Goods and Services Tax (GST), the need for informal sources of funds has been reduced, Jain said. "The cost of credit for micro and small enterprises will also decrease meaningfully, as lending will shift from collateral-based lending to cash flow-based lending," he said.
The deputy governor suggested that SIDBI could "hand-hold" microfinance providers in areas such as alternate credit scoring models and in predicting probability of default. The development finance institution should also take the lead in hosting an ecosystem within a well-defined regulatory sandbox to create infrastructure to reduce the turnaround time and achieve robust risk mitigation, he added.