The proportion of total non-performing assets (NPAs), or bad loans, in loans outstanding under Pradhan Mantri Mudra Yojana (PMMY) was 11.98% as of March 31, 2021, the Small Unit Development and Refinancing Agency (Mudra) said in response to a Right to Information query ( RTI).
In absolute terms, the total outstanding loans under the Mudra loans as on 31st March 2021 were Rs. While comparable data on Mudra loan NAPs for the past two years is not publicly available, at the end of fiscal 2018, the bad loan ratio under the plan was well below 5.38%, according to Mudra’s annual report for that year.
The pandemic has hit small businesses more than their larger counterparts, and this may put pressure on the loans they have taken out, including Mudra loans. Analysts at Crisil Ratings said Tuesday that the Micro, Small and Medium Enterprises (MSME) sector, despite benefiting from the Emergency Line of Credit Guarantee Scheme, is likely to see a deterioration in asset quality and will require restructuring to manage cash flow challenges. In fact, restructuring is expected to be the highest in the segment, at 4-5% of the loan book, leading to a jump in stressed assets to 17-18% by this financial end from roughly 14% in the last fiscal year, agency said in a report.
Similarly, bankers expressed concern about the quality of assets in the MSME sector. In an interview with FE in August, Sanjeev Chadha, Managing Director and CEO of Bank of Baroda said that the MSME sector has faced more challenges than others as it has been affected over the past year by shutdowns and demand disruptions. However, he hoped to retreat. He added, “My own sense is that for MSMEs and retail, the kind of slip we saw in the last quarter (Q1 FY22) was the height of distress, and that should start to diminish over the next few quarters.”
Also in the past, Reserve Bank of India (RBI) officials confirmed the increasing levels of stress in Mudra loans. In November 2019, the Deputy Governor of the Reserve Bank of India, MK Jain, said that while a massive boost like the Mudra scheme would have lifted many beneficiaries out of poverty, there was some concern about the increased level of NAPs. among these borrowers. “Banks need to focus on repayment capacity at the evaluation stage and monitor loans through their lifecycle closely,” he said.
PMMY was launched on April 8, 2015, with the aim of helping small business owners to access credit from the formal financial system. The three categories of loans under the scheme are Shishu (less than Rs 50,000), Kishore (between Rs 50,000 and Rs 5,000) and Tarun (more than Rs 5,000 and up to Rs 10,000). Mudra Agency offers refinancing to commercial banks, non-bank financial firms and MFIs against loans to small businesses.