Tag: Mudra loans

Mudra NPAs rise as Covid hits MSMEs

Personal Finance

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In the past too, Reserve Bank of India (RBI) officials underlined the rising levels of stress in Mudra loans

The ratio of gross non-performing assets (NPAs), or bad loans, in the loans outstanding under the Pradhan Mantri Mudra Yojana (PMMY) stood at 11.98% as on March 31, 2021, the Micro Units Development & Refinance Agency (Mudra) has said in response to a Right to Information (RTI) query.

In absolute terms, the value of gross NPAs in Mudra loans as on March 31, 2021, was Rs 34,090.34 crore, while the value of loans outstanding under the scheme stood at Rs 2.84 lakh crore on the same date. While comparable data on Mudra loan NPAs for the last two years are not publicly available, at the end of FY18, the bad loan ratio under the scheme was a much lower 5.38%, as per Mudra’s annual report for that year.

The pandemic has hit small businesses harder than their larger counterparts and that may be putting pressure on loans taken by them, including Mudra loans. On Tuesday, analysts at Crisil Ratings said that the micro, small and medium enterprises (MSME) segment, despite benefiting from the emergency credit line guarantee scheme, is likely to see asset quality deteriorate and will require restructuring to manage cash-flow challenges. “In fact, restructuring is expected to be the highest for this segment, at 4-5% of the loan book, leading to a jump in stressed assets to 17-18% by this fiscal end from ~14% last fiscal,” the agency said in a report.

Similarly, bankers have expressed concern about asset quality in the MSME segment. In an interview with FE in August, Bank of Baroda MD & CEO Sanjiv Chadha had said that the MSME segment has been more challenged than others because for the last one year, they have been impacted by lockdowns and demand disruption. However, he was hopeful of a pullback. “My own sense is that both for MSME and retail, the kind of slippages we saw in the last quarter (Q1FY22) was peak distress, and that should start diminishing over the next few quarters,” he added.

In the past too, Reserve Bank of India (RBI) officials underlined the rising levels of stress in Mudra loans. In November 2019, RBI deputy governor MK Jain had said that while a push as massive as the Mudra scheme would have lifted many beneficiaries out of poverty, there was some concern at the growing level of NPAs 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 had said.

PMMY was launched on April 8, 2015, with the aim of aiding micro entrepreneurs 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 lakh) and Tarun (over Rs 5 lakh and up to Rs10 lakh). The agency Mudra offers refinance to commercial banks, non-banking financial companies and microfinance institutions against loans to micro enterprises.

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Mudra loan ratio trebles to 20% during pandemic as stress hits small businesses, BFSI News, ET BFSI

Banking & Finance

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A man displays new 2000 Indian rupee banknotes after withdrawing them from a State Bank of India (SBI) branch in Kolkata, India, November 10, 2016. REUTERS/Rupak De Chowdhuri/Files

Gross NPAs in the Mudra loan book is estimated to have reached around 20 per cent at June-end 2021, from around 6 per cent at March-end 2020.

As the stress builds up in the economy due to pandemic, lenders are seeing a sharp uptick in NPAs in Mudra loans, which have trebled in June 2021 over the pre-Covid fiscal of 2019-20.

Gross NPAs in the Mudra loan book is estimated to have reached around 20 per cent at June-end 2021, from around 6 per cent at March-end 2020.

In Maharashtra, public sector banks’ Mudra loan NPAs have risen to 32 per cent at June-end 2021, from 26 per cent at June-end 2020.

SBI’s NPA on Mudra loans in the state is at 59 per cent as on June-end 2021 followed by Punjab National Bank at 44 per cent, Indian Bank at 33 per cent and Bank of Maharashtra at 31 per cent at June-end 2021.

In Jharkahnd, Canara Bank Mudra NPAs as high as 114.35 per cent as bad loans were Rs 183.63 crore against the outstanding amount of loans at Rs 160.58 crore.

Among private sector banks, HDFC Bank’s Mudra loan NPA in Jharkhand was at 26.21 per cent, followed by IDFC First Bank at 24.93 per cent.

The Credit Guarantee Fund for Micro Units (CGFMU) provides guarantee against loan losses in Mudra loans, but 75 per cent of NPAs in Mudra loans, while the rest of losses have to be borne by the banks.

Loan losses

Public sector banks (PSBs) have seen a sharp surge in the amount of Mudra loans turning into non-performing assets (NPAs) over the last three years. NPAs in Mudra loans had jumped to Rs 18,835 crore in 2019-20, from Rs 11,483 crore in 2018-19 and Rs 7,277 in 2017-18, according to the Finance Ministry data.

Mudra loan disbursements by state-owned banks rose to Rs 3.82 lakh crore in 2019-20, from Rs 3.05 lakh crore in 2018-19 and Rs 2.12 lakh crore in 2017-18. The Mudra loan NPAs as a percentage of total loans rose to 4.92 per cent in 2019-20 from 3.42 per cent in 2017-18.

Banks and financial institutions have sanctioned Rs 14.96 lakh crore to over 28.68 crore beneficiaries in the last six years. The average ticket size of the loans is about Rs 52,000, it said.

Under PMMY collateral-free loans of up to ₹10 Lakh are extended by Member Lending Institutions (MLIs) viz Scheduled Commercial Banks, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Non-Banking Financial Companies (NBFCs), Micro Finance Institutions (MFIs) etc.

The scheme

Under the scheme, credit up to Rs 10 lakh is provided by banks and non-banking financial companies to small and new businesses.

The loans are given for income generating activities in manufacturing, trading and services sectors and for activities allied to agriculture.

The government has sanctioned loans of Rs 15.5 lakh crore under PMMY since its inception in April 2015.

Till March 31, 2021, the Government had sanctioned 29.55 crore loans under the scheme. Of this more than 6.8 crore loans worth Rs 5.2 lakh crores have been given to new entrepreneurs.

For FY22, loans worth Rs 3,804 crore have been sanctioned by 13 public sector banks (PSBs) as on June 25.



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Defying Covid wave, disbursal of Mudra loans grows in Q1

Banking & Finance

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Notwithstanding the severe second wave of Covid-19, disbursal of petty business loans under Pradhan Mantri Mudra Yojana (PMMY) has picked up in the first quarter of the current financial year compared to the same period last year.

As on July 2, loans worth ₹37,601 crore have been disbursed against a total sanctioned amount of ₹41,516 crore, according to data available with Mudra.

“The disbursals in the first quarter of FY22 were higher by about ₹4,000 crore compared to the first quarter of FY,’’ a senior official of Mudra told BusinessLine.

“Though the second wave of the pandemic in the first quarter was more severe than last year, the lockdowns were scattered in different States and there was no national lockdown. Even bank employees braved Covid and continued to work. All this drove growth in disbursal of Mudra loans,’’ a senior official of State Bank of India told BusinessLine.

Three categories

Mudra loans are extended in three categories – Shishu (up to ₹50,000), Kishor (above ₹50,000 and up to ₹5 lakh) and Tarun (above ₹5 lakh and up to ₹10 lakh).

Among the three categories, Shishu loans have a lion’s share in the total loans at about 48 per cent.

Bankers expect the growth in PMMY loans to gain pace further in the remaining quarters with the second wave of covid coming under control now.

Last financial year was challenging for the small business loans. The loans dropped to ₹2,79,481 crore from ₹3,37,495 crore in the financial year 2019-20.

However, there is no complete data on the state of non-performing assets (NPAs) in the segment and among banks.

Mudra loans are given by commercial banks, regional rural banks, small finance banks, MFI and NBFCs. The public sector banks, however, have been the main channel and account for over 60 per cent of the loans disbursed.

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Mudra loans tide over Covid-19 blues

Banking & Finance

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The disbursal of small business loans under Pradhan Mantri Mudra Yojana (PMMY) has almost come out of Covid bluesand may match last fiscal’s figure, going by the current trend.

With one month left for the closure of the current financial year, loans worth ₹2,32,594 crore have been sanctioned as on February 19, 2021, of which, ₹2,19,107 crore has already been disbursed.

In the previous fiscal, total sanctioned loans under Mudra, as on February 20, 2020, stood at ₹2.77-lakh crore.

PMMY is a scheme of the Centre to provide loans of up to ₹10 lakh to non-corporate, non-farm small/micro enterprises. These loans are classified as Mudra loans under PMMY.

These collateral-free loans come in three categories – Shishu (up to ₹50,000), Kishore (between ₹50,000 and ₹5 lakh) and Tarun (₹10 lakh).

Small business loans sanctioned under the PMMY have exceeded the target set for the financial year ended March 31, 2020, at ₹3,37,495 crore.

“Given the fact that banking operations and business were impacted for a significant period of almost two quarters, the present performance of Mudra loans is certainly beyond initial expectations,” a senior official with Union Bank of India, told Business Line.

Reverse migration

The reasons for the steady demand of Mudra loans are varied. According to a senior SBI official, loss of jobs in urban areas due to pandemic-induced circumstances has resulted in reverse migration to rural- and semi-urban areas. “Some of the people are now setting up small business to make a living and PMJY is facilitating this,” he said.

As part of the economic stimulus package, Atmanirbhar Bharat Abhiyaan, the government had also announced interest subvention scheme for Shishu loans.

Under this scheme, loans are given interest subvention of 2 per cent for 12 months from May 2020, which has made these advances more affordable for petty entrepreneurs, say bankers.

Bankers, however, are tight-lipped over the quantum of Non-Performing Assets (NPAs) under Mudra loans in the current financial year. The clear picture on bad loanswill only emerge only after the closure of the current financial year, they say.

As per government data, NPAs in 2019-20 were at 4.80 per cent of the total loans disbursed.

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Customers stand to gain as private banks can now take up govt business

Banking & Finance

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Surabhi

The lifting of the embargo on granting government business to private banks will not only enable them get a greater share of government business, but will also benefit their customers, say experts.

“Customers of new private sector banks will be very happy, there will be a marginal change for old private banks and public sector banks may lose some ground,” said a former banker.

At present, apart from public sector banks, only a few large private sector banks are allowed to do government business.

Now, all private banks will be able to take up activities such as small savings schemes such as public provident fund and Sukanya Samriddhi accounts, and tax payments and pension payments, among other initiatives.

Customers with existing accounts in a private bank will not have to approach a public sector bank for these activities.

“It will be a gain to the customer as well as to the bank. Apart from the three large private sector banks, other private banks can also now serve customers for services such as tax payments, pensions and small saving scheme,” said Prashant Kumar, Managing Director and CEO, YES Bank, adding that private banks can also offer solutions to the government for payment of subsidies and direct benefit transfers through their strong focus on technology.

Tech advantage

Most private bankers believe that in terms of technology, they are much better positioned to serve customers.

Uday Kotak, Managing Director and CEO, Kotak Mahindra Bank, in a tweet said: “It will enable the banking sector to serve customers better. Private and public sector must both work towards sustainable development of India.”

Private banks are also hopeful of higher fee income and float from doing government business.

“Fee income will be a direct advantage to private banks as they will get commission for doing government business. Public sector banks will lose ground on this,” noted a former banker.

Meanwhile, float or the amount parked with banks by customers, is being seen as another big positive by private banks. Government business brings in float money to public sector banks, some of which will now be routed to private banks.

“The float and fee income that can be garnered on tax collections (₹11 trillion budgeted for 2021-22), duties, GST collections (₹11 trillion), payment facilities, Central/state pension plans (₹2 trilion), small savings schemes (₹13 trillion) can add significant delta to revenues,” said a note by ICICI Securities.

Unions unhappy

However, bank unions point out that public sector banks have been at the forefront of opening Jan Dhan accounts, financial inclusion through branch opening in rural areas, as well as giving out Mudra loans while private banks have lagged behind.

“The government is trying to bring a level-playing filed with a different set of guidelines for private banks. They should create the same rules for them and bring them under the ambit of CVC and other regulatory guidelines,” said Soumya Datta, General Secretary, All India Bank Officers’ Confederation.

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