Finance Minister Arun Jaitley, in his Union Budget speech on Wednesday, said that the government would double the lending target under the Pradhan Mantri Mudra Yojana (MUDRA) to Rs 2.44 lakh crore for financial year 2017-2018. The idea is to provide the comfort of easy financing to small business owners, some of whom may have been hurt by the government's demonetisation exercise.
Launched in 2015, post a budget announcement, the MUDRA Yojana provides small loans with ticket sizes of up to Rs 10 lakh for developing and refinancing micro enterprises which operate in the non-corporate space. The scheme works by providing refinancing to last mile financial institutions such as micro-finance institutions (MFI), non-banking finance companies (NBFC) and banks.
Claiming that the launch of MUDRA scheme has helped fund the unfunded and under-served entrepreneurs in the country, Jaitley said the credit provided under the scheme has already exceeded the Rs 1.22 lakh crore target set for financial year 2017.
Last year, the target of Rs 1.22 lakh crore was exceeded. For 2017-18, I propose to double the lending target of 2015-16 and set it at Rs 2.44 lakh crore. Priority will be given to dalits, tribals, backward classes, minorities and women.Arun Jaitley, Finance Minister in his Budget speech
The Mudra scheme provides three types of loans: Shishu (up to Rs 50,000), Kishore (Rs 50,000 to Rs 5 lakh) and Tarun (Rs 5 lakh to Rs 10 lakh).
However, 99.6 percent of all loans disbursed by non-banking financial corporations (NBFC) under the MUDRA scheme has been in the Shishu category, with a ticket size of less than Rs 50,000, in financial year 2015-16, according to data from agency's website. The picture is not very different in the private bank and micro-finance institution space, with 87 percent and 93 percent belonging to the same ticket size, respectively.
.png)
How The MUDRA Yojana Is Functioning?
Essentially, lending shown under the MUDRA scheme is just a reclassification of loans that were already being given by individual banks and non-banks in the stipulated ticket-sizes.
MUDRA as an agency is currently not lending since it has not been given a bank status. What it does is offer refinancing but only to those banks that are willing to lend to this segment at base rate. This poses the first challenge. Small ticket business loans are a relatively high risk category and typically a bank would not lend to this segment at base rate. In a conversation with BloombergQuint on January 5, Jiji Mammen, chief executive officer of MUDRA, acknowledged that some large banks like State Bank of India do not want to lend at base rate and hence have not taken refinancing from the agency.
22 banks refinanced Rs 3300 crore worth of loans under the MUDRA scheme in 2015-16 and an additional Rs 1200 crore has been refinanced this year, said Mammen. This is much lower than the amount shown as disbursed under the scheme.
The refinancing is provided at a concessional rate of 6 percent, Mammen explained. Banks or non-bank financial institutions can only refinance that part of the portfolio which has been given out at base rate at the concessional 6 percent rate.
As of now, MUDRA does not do any standalone lending. In the budget speech of 2015, the government had proposed that MUDRA would be converted into a bank but the Reserve Bank of India has not yet cleared this proposal. As such, MUDRA is working as a non-bank financial institution under the umbrella of SIDBI (Small Industries Development Bank of India).
Given the manner in which the MUDRA scheme is operating, it is largely a reclassification of existing and incremental lending, said Jindal Haria, associate director of financial institutions at India Ratings.
It's MUDRA branded not funded. Neither it is funded or refinanced by MUDRA Bank. Most banks were already giving business loans up to Rs 10 lakh. A lot of it is business as usual for these banks.Jindal Haria, Associate Director - Financial Institutions, India Ratings
Mammen acknowledged this.
Since the banks were already lending to this segment, MUDRA has provided an additional boost due to the easy availability of refinance, he said, while also accepting that the amount of refinancing is much smaller than the amount disbursed.
Mammen declined to comment on whether they would do away with the condition that loans eligible for refinancing must be given out at base rate.
Increased Targets A Risk?
MUDRA scheme disbursed Rs 1.3 lakh crore last year. Out of this amount, banks disbursed Rs 87,000 crore while MFIs loaned out another Rs 45,000 crore.
With the government doubling the target for the current year, banks may be forced to step up lending to this segment to show the required amount under the MUDRA classification. This could prove to be a concern since bad loans in this segment have started to pick up. Banks need to be careful in lending to this segment, said Haria.
Our inhibition was that this will lead to banks just doling out money like that. And that happened to an extent. Some banks told us that they have started seeing some NPAs in this segment. The problem is relatively masked right now because of the high-growth in this segment that banks are showing. If they have doubled their targets this budget, we just hope that banks maintain the quality of loans or we will be staring at a scenario akin to the 1970s where loans were being doled out to anyone.Jindal Haria, Associate Director - Financial Institutions, India Ratings
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
