Reserve Bank flags rising bad assets from Mudra loans

The Reserve Bank of India (RBI) has expressed concern over rising bad loans from Pradhan Mantri MUDRA Yojana (PMMY), a scheme announced by Prime Minister Narendra Modi in April 2015, which offers faster credit, with ticket sizes starting from ₹50,000 and going up to ₹10 lakh, to small businesses.

“While such a massive push would have lifted many beneficiaries out of poverty, there has been some concerns at the growing level of non-performing assets among these borrowers,” RBI Deputy Governor M.K. Jain said at an event organised by the Small Industries Development Bank of India.

With stress in such loans increasing, the central bank is set to ask bankers to monitor such loans closely as unsustainable credit growth in the sector could risk the system.

Mr. Jain also highlighted the systemic and concentration risks that could emerge in the microfinance sector in India. “Systemic risk may arise from unsustainable credit growth, increased inter-connectedness, pro-cyclical and financial risks manifested by lower profitability,” he said.

Observing that GST had hit the informal economy significantly, Mr. Jain said, “as a result of the improved digital footprint, MSMEs have become attractive clients for banks, NBFCs and MFIs, thereby reducing their dependence on informal source of funds.” The cost of credit for MSMEs will also come down meaningfully as lending will shift from collateral-based lending to cash flow based lending, he said.

The government had in July informed Parliament that total NPA in the Mudra scheme of over ₹3.21 lakh crore has jumped to 2.68% in FY19 from 2.52% in FY18. Since the inception of the scheme, over 19 crore loans have been extended under the scheme up to June 2019, it had said. Of the total, 3.63 crore accounts are in default as of March 2019.

However, according to an RTI reply, the bad loans in the scheme soared a whopping 126% in FY19, jumping by ₹9,204.14 crore to ₹16,481.45 crore in FY19 over the previous year.

(With PTI inputs)

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Printable version | May 15, 2021 1:25:20 PM |

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