Mudra Loans become NPA

BE/RBINOTE/41/2019

Poor Credit appraisal and follow up has resulted in high bad debts in Mudra (Micro Units Development and Refinance Agency) Loans according to the RBI Governor in a meeting with Public Sector Banks Chiefs

1. At the end of 2018-19 (FY 19) the Mudra loans stand at 9.3 per cent of the total advances. Loans under Pradhan Mantri Mudra Yojana (PMM) were Rs. 3.22 trillion in the Financial Year 2019.
2. In 2019-20 loans disbursed under Mudra have amounted to Rs. 49,216 crore and the RBI report adds that bad debts have gone up from 4.35 per cent of advances in 2016-17 to 9.3% in FY 2019.
3. This RBI contends is due to
   1. improper appraisal of credit proposals,
   2. improper verification of end use of funds
   3. improper monitoring of accounts
4. Also, the regulator added that there was significant increase in the portfolio of wilful defaulters in small loans called Shishu Category.
5. There are three categories of loans under Mudra:
   1. Shishu Category covering loans upto Rs. 50,000
   2. Kishor Category covering loans above Rs. 50,000 and upto Rs. 5 lacs
   3. Tarun Category covering loans above Rs. 5 lacs and upto Rs. 10 lacs
6. RBI report further states that NPAs under Shishu Category amounted to Rs. 12.39 per cent of the total loans, Kishor Category loans amounted to 10.19 per cent and for Tarun Category the NPAs were at par with default rate for banks which is 8.9 per cent.

Other information:

• Mudra loans are given without any collateral security
• A committee headed by former SEBI Chief has recommended to release Rs. 20 lacs under Mudra loans without collateral
• This in turn has caused concern from RBI’s side, since if this proposal of increase in the Mudra loan is acceded by the Government, the burden on the banks will be increased further.

Bankers’ Concern:

Following are the concerns from the Bankers’ side

• Banks do not adequate manpower to go for recovery of over-dues from the defaulters
• The loan targets set by Government and RBI was too high
• Often the bank staff are too eager to disburse the loans only to achieve the target set
• Once the loans are given there is virtually no mechanism to go for an effective mechanism for repayment
• Though bankers have recovery agents and business correspondents, since they are local people, borrowers do not take them seriously
• Bankers want Specialized Recovery Agents to be appointed on a commission basis for an effective recovery of NPAs, which may not be acceded to by RBI.