Why Bad Loans Are Low Under MUDRA Scheme

By Moderator July 22, 2019 12:26

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Non-performing assets expressed as a percentage of MUDRA scheme were at 2.68% in 2018-19, up 16 basis points from 2.52% in the previous year

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  • The Pradhan Mantri MUDRA scheme has been a popular scheme of the Narendra Modi government. Even as total non-performing assets (NPAs) of Indian banks were at ₹9.49 trillion as of March, only 2.68% of MUDRA scheme loans turned bad.
    • As of 31 March, overall banking NPAs were at 9.3%, which means for every ₹100 of loans given by banks, ₹9.30 had turned into an NPA, that is, it hadn’t been repaid for a period of 90 days or more.
    • In comparison, MUDRA loan NPAs were at 2.68%, a fairly low figure.
  • Out of the 182.60 million MUDRA scheme loans sanctioned, only 3.63 million accounts defaulted as on 31 March. This means only 1.99% of the loans sanctioned under MUDRA have turned bad over the years.
    • On the whole, it is safe to say that NPAs of MUDRA loans have remained relatively stable over the last few years.
  • NPAs on MUDRA loans are closer to the NPAs on retail loans, which in 2018-19 were at 1.8%.
    • The bulk of MUDRA loans are of up to ₹50,000 and are referred to as Shishu loans. The NPAs under this category have shown a steady decline from 4.14% in 2016-17 to 1.93% in 2017-18 and 1.29% in 2018-19.
    • These comparative figures clearly tell us that when it comes to the Indian banking sector, small borrowers are not the problematic lot, but the large ones are.

Reasons for Low NPAs on MUDRA loan

  • One reason for the low NPAs of MUDRA loans perhaps lies in the fact that a bulk of them is given to women. As of 14 June, out of 189.1 million MUDRA scheme loans, more than 131.8 million, or 69.7%, were given to women borrowers.
    • The history of microfinance lending shows that women are much better at repaying loans.

Reasons for default in Mudra loan

  • One reason is that first-time borrowers under the Shishu category often prioritize emergent needs over repayments, business failures, inefficiencies in lending practices, poor credit appraisal, wilful default by borrowers and impaired cash flows of units.
    • Despite this, the default rate of MUDRA scheme loans is less than 3%, and that is one less reason to worry about Indian banks, which have been down in the dumps for a while now.

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By Moderator July 22, 2019 12:26