Riskier Loans, Less Than Rs 50,000, Nearly Half Of PM’s Loan Scheme

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One in every two loans given to small businesses under the Pradhan Mantri Mudra Yojana (Prime Minister’s Mudra Scheme) was below Rs 50,000, according to new government data, raising risk of adding to the bad-loan pile as smaller loans are more difficult to monitor and recover for banks.

 

The share of loans of less than Rs 50,000 given to small businesses rose 1.2 percentage points to 47.9% in 2016-17 from 46.7% in 2015-16, data released by the statistics ministry in September 2017 show.

 

Source: Ministry of Statistics and Programme Implementation

 

The share of Mudra loans that turned bad is estimated at 10-15% and rising after demonetisation and the roll-out of the goods and services tax, the Hindu Business Line reported on October 19, 2017.

 

Loans to small businesses were the second-largest at Rs 74,051 crore or 14% of India’s Rs 5.35 lakh crore of loans declared bad in 2015-16, IndiaSpend reported on July 31, 2017.

 

Loans less than Rs 50,000 under the Mudra scheme rose 35.25% to Rs 83,892 crore in 2016-17 from Rs 62,028 crore in 2015-16.

 

The top three states by loans of less than Rs 50,000 were Karnataka, Tamil Nadu and Maharashtra in 2015-16, or 38.6% of Mudra advances. In 2016-17, West Bengal, Tamil Nadu and Bihar were the top three, accounting for 36% of Mudra advances.

 

While loans less than Rs 50,000 fell as a share of Mudra loans by eight and nine percentage points for Karnataka and Maharashtra, respectively, the share rose by eight percentage points for Tamil Nadu between 2015-16 and 2016-17.

 

Source: Ministry of Statistics and Programme Implementation

 

The states that lent more than Rs 10,000 crore to small businesses under the scheme rose to seven in 2016-17 from four in 2015-16, with their share rising 16 percentage points to 59% in 2016-17 from 43% in 2015-16.

 

The Micro Units Development and Refinance Agency (Mudra) was launched on April 8, 2015, “for developing and refinancing all micro-finance institutions in the business of lending to micro/small business entities engaged in manufacturing, trading and service activities with financing requirements up to Rs 10 lakh”, according to this government release dated April 7, 2017.

 

(Vivek is an analyst with IndiaSpend.)