Covid stress on small units: Mudra loan NPAs increase in PSU banks

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PUBLIC SECTOR banks are seeing a sharp increase in the proportion of Mudra loans turning into non-performing assets (NPAs) following the impact of Covid on the income and repayment capacity of borrowers, according to bankers and data analysis available state-level bankers’ committees.

The proportion of these NPAs is estimated to have increased more than three times at the end of June 2021 compared to fiscal year 2019-2020, the bankers said. “Gross NPAs in Mudra’s loan portfolio are estimated to have reached around 20% at the end of June 2021, up from around 6% at the end of March 2020, with many states showing increasing distress on this book,” a senior banker with an audience said the bank of the sector.

In a key state like Maharashtra, for example, the SBI’s NPA on Mudra loans is 59% at the end of June 2021. Canara Bank reported an NPA as high as 114.35% in Jharkhand as of June 30, 2021.

Under the Pradhan Mantri Mudra Yojana (PMMY), banks provide unsecured loans of up to Rs 10 lakh to small / micro non-agricultural enterprises for income-generating activities. The increase in NPA is accompanied by an increase in disbursements under the program – from Rs 3.11 lakh crore in 2018-19 to Rs 3.29 lakh crore in 2019-20.

The data available from key states reflects the extent of stress:

* NPAs on Mudra loans from public sector banks in Maharashtra climbed to 32% at the end of June 2021, from 26% at the end of June 2020.

In Maharashtra, gross NPAs for all lenders, public, private and small financial banks, climbed to 22% at the end of June 2021 from 14.94% at the end of June 2020. Mudra loans outstanding in Maharashtra stood at at 24,850 crore and total postcode at Rs 5,521 crore.

After SBI, the highest proportion of NPAs among state public sector banks was recorded by Punjab National Bank at 44%, Indian Bank at 33% and Bank of Maharashtra at 31% at the end of June 2021.

* In Jharkhand, Canara Bank’s gross NPA reached 114.35% as of June 30, 2021. Mudra loans from the lender under the NPA at Rs 183.63 crore exceeded outstanding loans at Rs 160.58 crore.

Of the total Mudra loans of Rs 11,357.14 crore, Rs 1,055.53 crore or 9.29% turned into NPA at the end of June 2021. The NPA of the Bank of India in Jharkhand was 36. 20%, that of Punjab National Bank at 28.69% and that of SBI at 19.88% as of June 30, 2021.

Among private sector lenders, the NPA of HDFC Bank’s Mudra loan in Jharkhand was 26.21 percent, followed by IDFC First Bank at 24.93 percent – of HDFC Bank’s outstanding Mudra loans of Rs 208.69 crore, Rs 54.70 crore became NPA in June-end 2021.

* In Chhattisgarh, for which data is available until March 31, 2021, NPAs on Mudra loans amounted to Rs 442.56 crore or 9.8% of disbursements totaling Rs 4,518.01 crore as of March 31, 2021 , compared to NPAs of Rs 320.12 crore or 12.55 percent of disbursements of Rs 2551.24 crore as of March 31, 2020.

A similar trend is seen in other states such as Gujarat and Uttar Pradesh. Bankers say Mudra’s loan NPAs, which had shown a decent collection rate in the early years of the program, have been rising steadily, with stress rising dramatically over the past 18 months.

“It’s obvious that people’s jobs and incomes have been hit at the bottom of the pyramid, which is the target audience for Mudra loans. Now that shows up in the data as repayments are affected and defaults increase, ”said a public sector banker.

The Mudra loan NPA amount was Rs 7,277.31 crore with disbursements of Rs 2.46 lakh in 2017-18. This rose to Rs 11,483.42 crore with a disbursement of Rs 3.11 lakh crore in 2018-19. And in 2019-2020, 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 out for the purchase of remunerative equipment and vehicles, the stress has increased. “In these loans there is a kind of collateral built in. These are still the best performers in terms of repayment, but now the NPAs have accumulated there too,” said another banker.

The PMMY program was launched in 2015 to provide financial support to micro-entrepreneurs, with the government setting annual sanctions targets for lending to banks.

There are three categories: the Shishu loan of up to Rs 50,000 for micro-entrepreneurs like sellers and traders, the Kishor loan of Rs 50,000 to 5 lakh for small businesses such as the purchase of light commercial vehicles, Allied agricultural activities and equipment, and Tarun accounts of Rs. 5 -10 lakh for, say, food units.

The RBI has repeatedly warned banks about the program, asking them to properly assess borrowers’ repayment capacity. “In fact, we are stuck between two extremes. If we don’t give Mudra loans, we are asked why the penalties are weak. When we make loans, we are asked why NPAs are increasing, ”said another banker.

The central government micro-unit credit guarantee fund (CGFMU) offers lenders a guarantee against loan losses on Mudra loans, but bankers say the magnitude of the NPA spike is more than the blanket provided. In April of last year, the government increased the guarantee to 75 percent of NPAs in Mudra loans, from 50 percent previously. But the ceiling on guarantee payments was kept at 15% of total loans.

“The government coverage is only 75 percent, and the remaining losses have to be borne by the banks. It is a difficult situation, especially when borrowers in this category of loans have been particularly affected, ”said the banker.


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