SBI sees 53% spike in Mudra loan exposure in FY23

The country’s largest bank, State Bank of India (SBI), has increased its Mudra loan exposure by over 53 per cent to a staggering Rs 37,925 crore in FY23. This is the highest growth witnessed by the state-owned bank in the last 5 years, despite the rising NPAs, which are close to one fifth of the outstanding Mudra loans.

This massive increase in loan growth has contributed to a decrease in gross NPAs, with the percentage dropping from 23.70 per cent in 2021-22 to 16.17 per cent  in 2022-23. In terms of absolute numbers, the gross NPAs rose from Rs 5,889 crore in 2021-22  to Rs 6,133 crore in 2022-23.

The Mudra loan, under the Pradhan Mantri Mudra Yojana (PMMY), is a business financing initiative offering loans of up to Rs. 10 lakh to small, non-corporate, and non-farm enterprises.

The SBI has actually grown its portfolio much higher than the industry. The disbursement of small business loans under the PMMY saw an overall growth of 35 per cent growth to Rs 4.46 lakh crore in 2022-23.  In terms of the number of loans, the Mudra loan scheme saw 6.23 crore loans sanctioned under PMMY in 2022-23, representing a growth of 15 per cent from 5.37 crore in 2021-22.

Launched in 2015, the Mudra scheme comprises three distinct loan categories. The Shishu category caters to loans of up to Rs 50,000, the Kishor category encompasses loans ranging from Rs 50,000 to Rs 5 lakh, and the Tarun category extends to loans between Rs 5 lakh and Rs 10 lakh.

Despite being supported by the Micro Units Development and Refinance Agency (MUDRA), a government-owned NBFC facilitating the growth of the micro-enterprise sector, the refinancing assistance provided to banks is minimal. The banks actually lend money from their balance sheets.

The asset quality deterioration story is similar for the other public sector banks. These loans without any collateral have seen a gradual rise in gross NPAs over the last few years. In fact, the gross NPAs are the highest in the Mudra segment, as compared to agri, MSMEs or even credit cards and personal loans.

A significant drawback in the scheme stems from the PSBs’ aggressiveness. Initially, the government had established targets, including geographical sub-targets, for banks. However, PSBs have their own challenges of inadequate credit appraisal, and lack of proper monitoring.

Due to the extensive diversification in the banks’ lending portfolios, the exposure of Mudra does not pose a risk to the balance sheet of banks. However, what is concerning is that the NPAs have yet to decrease to single-digit figures.

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