Public sector banks have seen a steady rise in the amount of Mudra loans turning into non performing assets (NPAs) over the last three years. The amount of Mudra loans given by state-owned banks that turned into NPAs rose to Rs 7,277.31 in 2017-18, nearly double of Rs 3,790.35 crore of NPAs recorded in 2016-17, according to finance ministry data.
During this period, the total amount of Mudra loans extended by PSBs rose around 22 per cent to Rs 92,492.69 crore in 2017-18 from Rs 71953.66 crore in 2016-17.
"As reported by Public Sector Banks (PSBs), total Non-Performing Assets (NPAs) for loans extended under Pradhan Mantri Mudra Yojana during the last three years were Rs 596.72 Crore (2015-16), Rs 3,790.35 Crore (2016-17) and Rs 7,277.31 Crore (2017-18) respectively. PMMY NPAs as on 31st March, 2018 for PSBs were 3.43% of the amount disbursed under the scheme," Shiv Pratap Shukla Minister of State in the finance ministry said in reply to a question in the Lok Sabha.
Since the launch of the PMMY on April 8, 2015, loans disbursed by banks and microfinance institutions for non-corporate small borrowers, for income-generating activities in the non-farm segment are being termed as Mudra loans. A total of Rs 2.53 lakh crore worth of Mudra loans were disbursed in 2017-18, as compared to Rs 1.80 lakh crore in 2016-17.
Interest rate on these loans ranges from 8-12 per cent. Apart from PSBs, private banks, micro-finance institutions and other member lending institutions also grant Mudra loans.
Lenders struggle as loans mostly collateral-free
The Mudra scheme is aimed at improving credit flow to people engaged in non-farm income generating activities and intended to replace high cost borrowings such as loans from money lenders with formal funding channels that are cheaper. While borrowers have been benefitting from availability of these funds, the scheme also poses a challenge for lenders as these are mostly collateral-free loans. Bankers say loans for purposes such as buying an auto or taxi are more secure as they come with an in-built collateral, while other forms of Mudra loans have a greater potential of turning into NPAs.
"PMMY loans extended by PSBs were standard loans in terms of repayment as on 31st, March 2018, except for NPA (as indicated above). PSBs follow recovery procedures as approved by banks' boards and in compliance of extant Reserve Bank of India (RBI) guidelines. Non-Performing accounts are periodically monitored for recovery of overdue amount," Shukla said.
While Mudra loan NPAs ratio of public sector banks were 3.43 per cent, the overall loans in this category registered an NPA rate of 5.38 per cent as on March 31, 2018.
Such loans are extended by banks, regional rural banks and micro-finance institutions, and refinanced by Micro Units Development and Refinance Agency Ltd. Banks and MFIs can draw refinance under the scheme after becoming member-lending institutions (MLIs) of Mudra. Mudra has enrolled around 200 MLIs including 93 banks, 72 MFIs, 32 Non Banking Financial Companies and 6 small finance banks.
The amount of refinance provided by MUDRA more than doubled to Rs 7501.05 crore in 2017-18, up from Rs 3525.94 crore in 2016-17. Commercial banks accounted for the largest chunk of refinance at Rs 4405.73 crore in 2017-18, up from Rs 1886.73 crore in 2016-17. Loans under PMMY 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.
From the banks' point of view, automobile loans and electric-rickshaw loans are the best form of Mudra loans in terms of repayment record, as security gets created as soon as the loan is provided. For most other Mudra loans, there is no collateral for the bank to turn to in the case of non-repayment.