The Pradhan Mantri MUDRA Yojana has been a popular scheme of the Narendra Modi government. Even as total non-performing assets (NPAs) of Indian banks were at 9.49 trillion as of March, only 2.68% of MUDRA loans turned bad. Mint analyses their better track record.

5) What proportion of MUDRA loans has turned into NPAs?

Non-performing assets expressed as a percentage of MUDRA loans were at 2.68% in 2018-19, up 16 basis points from 2.52% in the previous year. One basis point is one-hundredth of a percentage point. Having said that, MUDRA loan NPAs were at 2.89% in 2016-17. On the whole, it is safe to say that NPAs of MUDRA loans have remained relatively stable over the last few years. Out of the 182.60 million MUDRA loans sanctioned, only 3.63 million accounts defaulted as on 31 March. This means only 1.99% of the loans sanctioned under MUDRA have turned bad over the years.

(Graphic: Paras Jain/Mint)

4) How does this figure compare with overall banking NPAs?

As of 31 March, overall banking NPAs were at 9.3%, which means for every 100 of loans given by banks, 9.30 had turned into an NPA, that is, it hadn’t been repaid for a period of 90 days or more. In comparison, MUDRA loan NPAs were at 2.68%, a fairly low figure. NPAs on MUDRA loans are closer to the NPAs on retail loans, which in 2018-19 were at 1.8%. The bulk of MUDRA loans are of up to 50,000 and are referred to as Shishu loans. The NPAs under this category have shown a steady decline from 4.14% in 2016-17 to 1.93% in 2017-18 and 1.29% in 2018-19.

3) What do these figures indicate?

These comparative figures clearly tell us that when it comes to the Indian banking sector, small borrowers are not the problematic lot, but the large ones are.

4) Why are the NPAs of MUDRA loans low?

As of 31 March, NPAs of bank loans to industry were at 17.5%. In the case of public sector banks, the figure was 23.6%. As has been stated earlier, in the case of MUDRA loans, the NPAs are at 2.68%. One reason for the low NPAs of MUDRA loans perhaps lies in the fact that a bulk of them is given to women. As of 14 June, out of 189.1 million MUDRA loans, more than 131.8 million, or 69.7%, were given to women borrowers. The history of microfinance lending shows that women are much better at repaying loans.

5) Why do MUDRA loan defaults happen?

There are several reasons. One reason is that first-time borrowers under the Shishu category often prioritize emergent needs over repayments, business failures, inefficiencies in lending practices, poor credit appraisal, wilful default by borrowers and impaired cash flows of units. Despite this, the default rate of MUDRA loans is less than 3%, and that is one less reason to worry about Indian banks, which have been down in the dumps for a while now.

Vivek Kaul is an economist and the author of the Easy Money trilogy.

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