Mumbai: Non-banking financial companies (NBFCs) still have a long way to go to achieve the scale of commercial banks in Mudra loans, but they’re growing swiftly in sanctioning these small loans for businesses, official data showed.

According to the 2017-18 annual report of Pradhan Mantri Mudra Yojana (PMMY), though NBFCs sanctioned only over 27,000 crore of Mudra loans in FY18 against 92,492.68 crore by public sector banks, their year-on-year growth was faster. While NBFC Mudra loan sanctions increased 21,562.63 crore from a year ago, state-run banks could raise their Mudra loans by only 20,539.01 crore in the same period.

Impressively, NBFCs not only met their Mudra target of 9,050 crore for FY18, but their sanctions for the year were a five-fold jump from the previous year.

PMMY is a scheme launched in April 2015 for providing loans up to 10 lakh to non-corporate, non-farm small/micro enterprises. These advances are classified as Mudra loans and given by commercial banks, regional rural banks (RRBs), small finance banks, cooperative banks, micro finance institutions (MFIs) and NBFCs.

The data showed that lenders overall have classified 2.44 trillion loans under PMMY, a growth of 41% y-o-y. The other category of lenders—small finance banks (SFBs)—has also seen robust growth at 183% y-o-y to 19,022.89 crore. AU Small Finance Bank was the top institution among SFBs with a sanction amount of 4,614.4 crore to 117,000 borrowers.

Among state-run banks, State Bank of India (SBI) with 28,791 crore sanctions to 1.41 million accounts came first. It was followed by Canara Bank and Punjab National Bank (PNB) with 7,665 crore and 6,838 crore, respectively.

While NBFCs were facing a liquidity crunch after defaults by IL&FS and the subsequent investor reluctance, experts believe that lending under the PMMY scheme will largely remain unaffected.

According to Surendra Srivastava, chief financial officer, Mudra, while the growth this fiscal may not be as stellar as FY18, it will not be very poor either. He explained that since banks have started purchasing portfolios from NBFCs, the liquidity squeeze has somewhat been relaxed. “The NBFCs are getting cash in exchange of their existing loans being sold to banks and these funds are being used for new loans," said Srivastava.

A managing director at an NBFC, who did not want to be identified, said the liquidity crunch will not cause much disruption to NBFCs’ Mudra loans as the ticket sizes are not large. “Although liquidity conditions have been tight in the last few months, it does not mean we will see any significant slowdown in lending for the year," he added. The average ticket size stood at 52,739 in FY18, up from 45,472 in FY17.

Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services, said the rate of credit growth for NBFCs will certainly come down in FY19. “Apart from banks’ reluctance to lend to NBFCs, it is also the NBFCs’ inability to borrow funds from the markets in the current situation that will affect their growth," said Parekh.

The annual report pointed out that there are 57.7 million small businesses and micro units in India and a majority of them are owned by people belonging to scheduled caste, scheduled tribe or other backward classes.

“Of these, only less than 5% have access to formal credit institutions and the rest have to rely upon informal sources for funding their business (friends, relatives or money lenders)," it said, adding that Mudra loans want to bring these sectors under the formal credit channel.

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