Synopsis: In 2020-21, SBI’s outstanding Mudra loans totaled Rs 26,302 crore, compared to gross NPAs of approximately Rs 6,000crore. Mudra loans, which are issued to small firms as business loans, have shown a progressive increase in gross non-performing assets (NPAs) during the previous few years.
In the first pandemic year 2020-21, the country’s largest state-owned lender, State Bank of India (SBI), had a 23% increase in NPAs in its small-ticket Mudra loans.
The NPAs have increased from 20% of outstanding advances a year ago. Because of the loan moratorium, loan restructures, and increased working capital loan facility under the government guarantee plan; many had anticipated that the stress in the Mudra loans would not be obvious in the pandemic year.
Higher Mudra loan nonperforming assets at the country’s largest bank signals comparable asset quality deterioration in other PSBs as well. According to market players, “the banks have no choice but to make preparations for a considerably bigger loss in Mudra loans.” The GNPAs in the Mudra segment is substantially greater than in traditional NPAs such as agricultural loans and MSMEs.
Banks, on the other hand, have not put a stop to Mudra loan lending. The SBI alone approves and disburses about Rs 30,000crore in loans each year.
Since banks began disbursing loans, there have been redemptions, and the outstanding sum has remained consistent at around Rs 30,000crore. The first five-year Mudra loan cycle has come to an end, with Mudra loans typically lasting three to five years.
The PSBs had targets for disbursing Mudra loans in the beginning, including geographical targets. The scheme allows for a maximum credit sum of Rs 10 lakh.
The ceiling was even proposed to be raised from Rs 10lakh to Rs 20lakh by an RBI-appointed committee led by UK Sinha, the former chairman of the SEBI (Securities and Exchange Board of India)
Experts, on the other hand, believe that rather than increasing the loan ceiling, the entire process should be overhauled. The RBI has already advised banks to exercise caution. RBI Governor Shaktikanta Das had previously warned banks against lending to small borrowers. Raghuram Rajan and Urjit Patel, two past RBI governors, had given a similar warning about the Mudra’s expanding bad credit problem.
