The State Level Bankers Conference (SLBC) Expresses Concerns Over Rising NPAs in Mudra Loans in Maharashtra

The State Level Bankers Conference (SLBC), the apex body responsible for monitoring priority sector lending in Maharashtra, has recently raised concerns about the growing number of Non-Performing Assets (NPAs) in Mudra loans. Mudra loans, the ambitious microfinance scheme introduced by the Central government, have encountered challenges, prompting the SLBC to address the issue.

During a meeting held on March 17, the SLBC secretariat documented the “concern” expressed by the Executive Director of Bank of Maharashtra, the lead bank in the state for priority sector lending, regarding the “sharp rise” in NPAs associated with Mudra loans in public sector banks (PSBs) compared to private banks within the state. 

The records of the meeting indicate that he suggested the adoption of wise and timely actions at all stages of credit disbursal. As of September 30, 2022, the NPA percentages in Mudra loans for Indian Bank, Punjab National Bank (PNB), State Bank of India (SBI), and Union Bank were reported as 39%, 41%, 46%, and 34%, respectively.

The meeting records also include explanations provided by representatives of various banks regarding the reasons behind these rising NPAs. According to the representative from PNB, the NPAs are primarily due to financing taxi and car loans, particularly concentrated in Mumbai. 

The General Manager of SBI highlighted that the high delinquency rate can be attributed to the smaller average ticket size of Mudra loans, which is around Rs 3 lakh. Additionally, the records reveal that out of the total portfolio, 90% of the NPA in Mudra loans is contributed by the Parbhani district.

Mudra loans are categorized into three segments: Sishu (up to Rs 50,000), Kishore (Rs 50,001 to Rs 5 lakh), and Tarun (Rs 5 lakh to Rs 10 lakh). These loans are distributed by banks, non-banking financial companies, microfinance companies, and others, with targets set at both bank and district levels. The repayment period for Mudra loans ranges from 3 to 5 years.

As of February 3, the records indicate that the total sanctioned Mudra loans in Maharashtra under the scheme amounted to Rs 26,950 crore. Among these, Shishu loans accounted for Rs 8,970 crore, Kishore loans for Rs 10,541 crore, and Tarun loans for Rs 7,439 crore. However, it is important to note that as of December 31, 2022, Rs 612 crore (9%) of Shishu loans, Rs 2,693 crore (19%) of Kishore loans, and Rs 1,314 crore (12%) of Tarun loans had turned into NPAs.

Maharashtra has reported an overall NPA percentage of 14% in Mudra loans. Despite the low ticket size of these loans, bankers have expressed concern about the high NPA percentage. Even with the provision of interest subventions and other support schemes for the sector, businesses availing Mudra loans continue to face challenges due to the lingering impact of the COVID-19 pandemic and reduced spending. Consequently, there is a possibility of further increases in NPAs, adding to the existing concerns.

The Indian Express reached out to the SLBC for comment on the NPA issue, but they did not respond to the request. However, speaking on condition of anonymity, bankers acknowledged that the current high NPA percentage is worrisome. Given the nature of businesses availing Mudra loans, which are still grappling.