Micro-loans to small entrepreneurs have been a major promise of the Narendra Modi government from the very first budget in 2014 during its first term in office. The Pradhan Mantri MUDRA Yojana (PMMY) scheme, for which Rs 3 lakh crore was set as the initial target exceeded the target to about Rs 5.71 lakh crore loans disbursed by the last fiscal.
Initially extended to women entrepreneurs in self-help groups and other self-starter businesses, the Micro Units Development and Refinance Agency (MUDRA) was formed to act as a bridge between banks and loan takers, and is likely to receive a pat on the back in the upcoming budget.
Currently offering collateral-free loans under three categories: Shishu (up to Rs 50,000), Kishore (Rs 50,000 to Rs 5 lakh) and Tarun (Rs 5 lakh to Rs 10 lakh), these small business loans have witnessed a substantial increase across all states. However, the scheme have accounted for huge bad loans in bank books, which grew by 64 per cent, 52 per cent and 42 per cent in the three categories, respectively.
According to the data obtained under the RTI Act, there was an increase in the number of NPA accounts under the scheme from 17.99 lakh on March 31, 2018, to 28.83 lakh as on December 31, 2018. During the current year, the bad loan accounts under the Shishu, Kishore and Tarun categories reportedly stand at 58.33 per cent, 70 per cent and 45 per cent, respectively.
The data suggested that the total credit disbursements were also on the slower side with Rs 2.12 lakh crore disbursed during April 2018 – February 2019 period compared to Rs 2.46 lakh crore given in the last full fiscal year 2017-18. There are more than 12.38 crore loan takers under the scheme. Banks had often cried foul about their high targets for MUDRA loans and have now sought a restructuring of the scheme.
The finance ministry has already received a number of suggestions to do so. Prominent among these suggestions is the one received from Swadeshi Jagaran Manch (SJM), that said the scheme should benefit labour-intensive micro-businesses and traders. "Traders should be brought under the ambit of the MUDRA loans scheme," said Ashwini Mahajan, national co-convenor of Swadeshi Jagaran Manch.
The SJM had been backing protectionist measures as a solution to revive the economy, facing the impact of a slowdown and trade wars.
Earlier in 2015, former RBI governor Raghuram Rajan had warned of 'systemic credit risks' and had recommended a close review of Kisan Credit Cards, the MUDRA scheme and Credit Guarantee Scheme for MSMEs by SIDBI. Rajan had pointed that these easy loans would disrupt the credit market and credit culture.
Banks have been seeking repayments on some of these loans but the refinance agency MUDRA does not consider this a worry. "MUDRA loans remain mostly unaffected by increasing the number of bad loans in PMMY. While gross NPA in India across all sectors crossed 10 per cent in FY 2017-18, NPA level under PMMY is only 5.38 per cent as on March 31, 2018," a MUDRA official said. He said the RBI had also not raised much alarm over the NPAs, which are miniscule compared to the overall loan book.
"Repayments on NPA account are happening as the economy is seeing an improvement. Some of the NPAs occurred after demonetisation, but those accounts are also reviving their payments to banks," said the official.
The Small Industries Development Bank of India (SIDBI), which is also a shareholder of MUDRA, and administers most micro-credit schemes, have suggested that the scheme should be moved to a collateral-based model.
Prior to the budget, there were recommendations also from larger businesses, like export houses, real estate developers and small manufacturers, to be brought under the ambit of the scheme.
It now remains to be seen if Sitharaman tightens the loose ends in the scheme and makes it stricter on repayments. Banks would eagerly wait for the targets set by the government under the scheme. A lower target would bring relief to the banking sector which is facing high provisioning already on account of rise in NPAs by as much as 12.3 per cent in March this year.
