Public sector banks are experiencing a sharp surge in the proportion of Mudra loans turning into non-performing assets (NPAs) following the impact of Covid on incomes and repayment capacity of borrowers, according to bankers and an analysis of available data from state-level bankers’ committees.
The proportion of these NPAs are estimated to have shot up more than three times as of June-end 2021 over the 2019-20 fiscal year, bankers said. “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 with many states showing rising distress on this book,” a senior banker with a public sector bank said.
In a key state like Maharashtra, for instance, SBI’s NPA on Mudra loans is at 59 per cent as of June-end 2021. Canara Bank reported an NPA as high as 114.35 per cent in Jharkhand as of 30 June 2021.
Under the Pradhan Mantri Mudra Yojana (PMMY), banks provide collateral-free loans up to Rs.10 lakh to non-farm small/micro enterprises for income-generating activities. The rise in NPAs comes alongside an increase in disbursement under the scheme — from Rs. 3.11 lakh crore in 2018-19 to Rs. 3.29 lakh crore in 2019-20.
In Maharashtra, gross NPAs for all lenders, state-owned, private and small finance banks, shot up to 22 per cent at June-end 2021 from 14.94 per cent at June-end 2020. Outstanding Mudra loans in Maharashtra were Rs. 24,850 crore and total NPAs at Rs. 5,521 crore.
After SBI, the highest proportion of NPAs among public sector banks in the state has been recorded 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 Jharkhand, the gross NPA of Canara Bank was as high as 114.35 per cent as of 30 June 2021. The lender’s Mudra loans under NPA at Rs. 183.63 crore exceeded the outstanding amount of loans at Rs. 160.58 crore.
Out of total Mudra loans of Rs. 11,357.14 crore, Rs. 1,055.53 crore or 9.29 per cent have turned into NPAs as of June-end 2021. Indian Bank’s NPA in Jharkhand was at 36.20 per cent, Punjab National Bank’s at 28.69 per cent and SBI’s at 19.88 per cent as of 30 June 2021.
Among private-sector lenders, HDFC Bank’s Mudra loan NPA in Jharkhand was at 26.21 per cent, followed by IDFC First Bank at 24.93 per cent — of HDFC Bank’s outstanding Mudra loans of Rs. 208.69 crore, Rs. 54.70 crore has turned into NPA as of June-end 2021.
In Chhattisgarh, for which data is available till 31 March 2021, the NPAs on Mudra loans stood at Rs. 442.56 crore or 9.8 per cent of disbursements totalling Rs. 4,518.01 crore as of 31 March 2021, as compared to NPAs of Rs. 320.12 crore or 12.55 per cent of disbursements of Rs.2551.24 crore as of 31 March 2020.
A similar trend is seen in other states such as Gujarat and Uttar Pradesh. Bankers say that Mudra loan NPAs, which had shown a decent recovery rate in the initial years of the scheme, has been rising steadily with the stress building up significantly in the last 18 months.
“It’s obvious that jobs and incomes of people have been hit at the bottom of the pyramid, which is the target audience of Mudra loans. Now, this is showing up in data as repayments get affected and delinquencies rise,” a public sector banker said.
The amount of Mudra loan NPAs was Rs. 7,277.31 crore with disbursements at Rs. 2.46 lakh crore in 2017-18. This rose to Rs. 11,483.42 crore with the disbursement of Rs. 3.11 lakh crore in 2018-19. And in 2019-20, banks recorded an NPA amount of Rs. 18,835.77 crore with disbursements of Rs. 3.29 lakh crore.
Even in asset-backed Mudra loans, such as those taken for buying income-earning equipment and vehicles, the stress has been rising. “In these loans, there is kind of collateral built-in. These are always best performing in terms of repayment, but now NPAs have built up there too,” another banker said.
The PMMY scheme was launched in 2015 to provide funding support to micro-entrepreneurs, with the government providing annual loan sanction targets to banks.
There are three categories: Shishu loan up to Rs 50,000 for micro-entrepreneurs like vendors and shopkeepers, Kishor loan of Rs 50,000-Rs 5 lakh for smaller enterprises like buying for light commercial vehicles, allied agriculture activities and equipments, and Tarun accounts of Rs. 5-10 lakh for, say, food product units.