Reserve Bank Deputy Raised Alarm on Stressed Mudra Loans

Reserve Bank deputy governor MK Jain warned bankers about the growing stress in Mudra loans, which has crossed more than Rs 3.21 lakh crore RPT crore system-wide and asked them to monitor such loans closely as unsustainable credit growth in the sector can risk the system.

Prime Minister Narendra Modi had launched the Mudra scheme in April 2015 with much fanfare to offer speedier credit up to Rs 10 lakh to small businesses which are non- corporate, non-farm small/micro enterprises and which normally do not get bank funds due to their poor and mostly no credit rating. These loans are extended by banks, NBFCs, RRBs, cooperative banks and small finance banks.

Interestingly, it can be recalled that within a year of the launch of the scheme, the then Reserve Bank governor Raghuram Rajan had warned of asset quality troubles bubbling in the scheme but the then finance minister Arun Jaitely had brushed aside the concerns.

“Mudra loans are a case in point. 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,” Jain told a Sidbi event on microfinance.

The commercial-banker-turned central banker said banks need to focus on the repayment capacity at the appraisal stage itself and monitor loans through the life cycle of the account much more closely.

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