The Reserve Bank of India (RBI) has expressed concern over rising bad loans from Pradhan Mantri MUDRA Yojana (PMMY).
- The scheme offers faster credit, with ticket sizes starting from ₹50,000 and going up to ₹10 lakh, to small businesses.
- There has been some growing level of non-performing assets among these borrowers. And the stress of bad loans increasing, which may risk the credit growth in the financial system.
- The systemic and concentration risks that could emerge in the microfinance sector in India. The risk arises from-
- Unsustainable credit growth
- Increased interconnectedness
- Pro-cyclical and financial risks manifested by lower profitability.
Status of NPA under MUDRA:
- In July, the government had informed 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. Of the total, 3.63 crore accounts are in default as of March 2019.
- 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.
Know Pradhan Mantri MUDRA Yojana (PMMY):
It was launched in 2015 to provide loans up to Rs 10 lakh to non-corporate, non-farm small and micro-enterprises.
- PMMY contains three products to three levels of micro-enterprises under the name:
- Shishu: covering loans up to Rs 50,000/-
- Kishor: covering loans above Rs 50,000/- and up to Rs 5 lakh
- Tarun: covering loans above Rs 5 lakh to Rs 10 lakh
- Benefits: Borrowers are not required to provide security or collateral and additionally, there are no processing charges on Mudra loans.
Why MUDRA Loan?
- There is a large number of small business units, who find it difficult to access to the formal system of credit.
- Such micro-enterprises, however, may not normally have the resources to fund their operational costs or even reinvest to grow their business.
- One of the major constraints faced by the micro-enterprises segment is the lack of adequate credit access, leading to borrowing from informal sources like money lenders or limited to internal sources, thereby, stifling the growth of the sector.
2017-18 Annual Report of PMMY:
As per the report, the gross non-performing assets (NPA) across all sectors in the country crossed 10 per cent in fiscal 2017-18.
- In the financial year 2017-18, overall loans worth Rs 2.54 lakh crore were classified as Mudra loans. For 2018-19, a target of Rs 3 lakh crore has been set.
- NBFCs sanctioned approximately Rs 27,000 crore of Mudra loans during the fiscal as against Rs 92,492.68 crore sanctioned by public sector banks.
- SFBs also witnessed a robust growth at 183 percent to Rs 19,022.89 crore on a year-on-year basis.
- According to the report, the majority of a total of 577 crore small businesses and micro-units are owned by people belonging to the scheduled caste (SC), scheduled tribe (ST) or other backward classes (OBCs).
- Of these, less than 5 per cent have access to formal credit, while others rely on informal sources to fund their businesses.