RBI Deputy Governor MK Jain asked banks to monitor such loans closely as ‘unsustainable credit growth in the sector can risk the system’.

RBI Deputy Governor warns bankers of growing stress in Mudra LoansImage: YouTube/IDBI screenshot
Money Banking Wednesday, November 27, 2019 - 17:32

Mudra Loans, a financial product introduced by the Modi government, was touted as an indicator of economic activity as well as a job provider by the government. There are however signs that these loans too could have the NPA issue if not monitored tightly. The warning on this has come from a Deputy Governor of Reserve Bank, MK Jain.

The amount loaned under the scheme stands at around Rs 3.26 lakh crore.

Mudra Loans are meant to help the micro, small and medium enterprises (MSMEs) access bank funds to the extent of Rs 10 lakhs. These loans are extended by both regular banking channels and the non-banking financial institutions (NBFCs).

Jain was possibly referring to a trend noticed where the loan defaults in this particular category of loans was found to be creeping up. In terms of the numbers, it is reported that so far 19 crore loans have been approved and disbursed and of these 3.63 crore loans are classified as NPAs.

In a separate revelation through RTI, it has been revealed that the NPAs on the Mudra Loan accounts are at Rs 16,481.45 crore at the end of FY19. However, what is worrying is this figure was Rs 7277.31 crore the previous year. There has thus been a jump of 126% in the NPAs.

The RBI Dy Governor was speaking at an event on microfinance at SIDBI (Small Industries Development Bank of India) and his point was that default cases must be taken up by respective bank branches and solutions found. Leaving them unattended could lead to a crisis-like situation later on.

"Mudra loans are a case in point. While such a massive push would have lifted many beneficiaries out of poverty, there has been some concerns at the growing level of non-performing assets among these borrowers," A PTI report quotes him as saying at the Sidbi event.

Interestingly, the former RBI Governor often seen at loggerheads with the ruling dispensation had also warned that there is need to evaluate the asset quality of the Mudra Loans.

But the Deputy Governor felt there are merits in microfinancing as it has helped many people lift out of poverty. He also referred to the shift from collateral-based lending to cash flow-based lending and it could bring down the cost of lending process for the micro finance institutions, MFIs. He felt technology must be of assistance to these MFIs in spotting the potential defaulters and create better monitoring systems.

The RBI may come up with instructions to the banks and NBFCs to develop the proper monitoring and updating strategies to avoid any catastrophe as far as the Mudra Loans are concerned.

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