Bad Loans Under Mudra Scheme Rose To Over Rs 17,000 Crore In FY19

The rising bad loans appear to have led to caution among lenders with outstanding loans under the scheme declining between March and September 2019.

According to data provided by Mudra, defaults on loans disbursed under the scheme stood at Rs 17,712 crore by the end of March 2019. The agency did not provide default data as of September 2019.

While Mudra did not provide the bad loan ratio, a calculation based on loans outstanding as of March 2019 shows that defaults accounted for 6.8 percent of outstanding loans at the end of the last financial year. Mudra is yet to release its annual report for FY19. Its FY18 annual report had pegged the bad loan ratio at 5.38 percent.

In absolute terms, defaults rose from Rs 10,874 crore in March 2018 to Rs 17,712 crore a year later.

Aalok Gupta, chief executive officer of Mudra, could not be reached for comment.

Concerns about the asset quality of Mudra loans have been swirling around for some time now. Most recently, MK Jain, deputy governor, Reserve Bank of India, in a speech delivered last month asked banks to be cautious. “While such a massive push would have lifted many beneficiaries out of poverty, there has been some concern at the growing level of non-performing assets among these borrowers. Banks need to focus on repayment capacity at the appraisal stage and monitor the loans through their life cycle much more closely,” he said.

There is a question of how the lenders are doing the credit assessment of the borrower and whether they are diluting the underwriting standards in order to disburse loans to meet their targets under the scheme, said Parijat Garg, an independent consultant, who was formerly with a credit bureau. “Lenders need to align the loan instalment schedule with the borrowers’ livelihood so that they do not feel the pressure in case there is a slowdown in their business,” Garg said.

Decline In Outstanding Loans

Further, the RTI response shows that outstanding loans under the scheme stood at Rs 1.37 lakh crore as of Sept. 27 this year. This suggests a fall of nearly 50 percent from the Rs 2.6 lakh crore in outstanding loans at the end of March this year.

The fall in outstanding loans is likely a combination of repayments and lower fresh disbursements. Earlier this month, BloombergQuint reported that disbursements in the current year are running well below last year.

Loans worth Rs 1.58 lakh crore have been sanctioned under the scheme so far this year, as of Dec. 20, 2019. This is less than half the Rs 3.12 lakh crore sanctioned in 2018-19. With just three months to go before the financial year ends, the gap is unlikely to be bridged.

While one reason for the slower pace of sanctions under the scheme may be rising defaults, bankers told BloombergQuint that the government has not set any targets this year leading to lower sanctions.

The Mudra scheme was launched in April 2015 as a way to increase lending to small businesses. Under the scheme, Mudra provides low-cost refinancing to banks and non-bank lenders that offer small-ticket business loans to micro and small enterprises engaged in manufacturing, trading and service activities.

The scheme is divided into three categories: loans up to Rs 50,000 are categorised as Shishu; loans between Rs 50,000 and Rs 5 lakh as Kishor; and those between Rs 5 lakh and Rs 10 lakh as Tarun.

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