India's much publicised Mudra loans are becoming a new breeding ground for NPAs. Launched four years back to boost entrepreneurship, these small loans (less than Rs 10 lakh), without collateral, don't appear to be such a great idea in hindsight. The RBI reportedly cautioned the government over this recently, even as Secretary, Financial Services, Rajiv Kumar, spent the week playing down asset quality concerns.
The truth is, 'such schemes' need to be examined more closely for potential credit risk, says former RBI Governor Raghuram Rajan. In 2017/18, over 5 per cent of these loans of three-five years tenure turned NPAs. The disbursement figure is Rs 7.16 lakh crore. As redemption approaches, there are likely to be more defaulters.
Banks, under pressure to meet targets, are doing their best to squeeze all kinds of small loans under Mudra.
There is also little evidence of the promised refinancing support because the government has funding constraints. While PSBs are the biggest losers, private banks and NBFCs with relatively low NPAs are using technology and other proxies to make the most of micro loans. For the government, the only big gains are the over 12.27 crore borrowers for whom it claims to have created employment.