Bankers fear that as much as 25% loans under MUDRA scheme could turn bad.

 Outstanding loans under the Pradhan Mantri Mudra Yojana (PMMY) are increasingly becoming a cause of worry for banks as stress in small and medium enterprises (SMEs) has spiked default rates beyond the amount gauranteed by the government in the scheme.

Bankers say that the Supreme Court moratorium over classifying loans as non performing assets (NPAs) has so far kept defaults under wraps, even as recovery efforts are ongoing. But they fear that as much as 25% loans under the scheme could turn bad..

Loans to SMEs are always considered high risk and we expect NPAs of about 10%. The government gurantee on these loans had so far given banks the confidence to go ahead and lend but the economic disruption caused by Covid 19 means all calculations have gone haywire," said a senior banking executive.

Launched in 2015, PMMY offers loans up to Rs 50,000 for micro enterprises like vendors, traders and shopkeepers under the Shishu scheme while loans from Rs 50,000 to 5 lakh are offered to smaller enterprises like for purchase of light commercial vehicles and women self help groups under the Kishor scheme. Larger enterprises like small handlooms, food product units and equipment financing are done under the Tarun scheme with loans of between Rs 5 lakh to Rs 10 lakh.

Provisional data on the Mudra website until February 18 shows that banks, NBFCs and micro finance institutions have disbursed a total of Rs 2.19 lakh crore under the scheme. They had disbused Rs 3.29 lakh crore last fiscal.

The total outstanding amount at the end of last fiscal under the scheme was Rs 2.67 lakh crore. 

State Bank of India

 NSE 3.06 % (SBI) and 

IndusInd Bank

 NSE 1.78 % were the top two among banks disbursing Rs 34,978 crore and Rs 38,199 crore respectively in the last fiscal.

Mudra loans are refinanced by the government owned SIDBI. Moreover, the government guarantees about 50% of the NPAs in the porfolio upto 15% of the total size of loans given until March 2020.

"It is possible that the slippages in these loans could go beyond the guaranteed cover provided by the government as these self employed people have been worst hit this year. The situation has become better than the first half of the year and the government has also increased the guarantee cover this fiscal but we are preparing for the worse," said another senior banking executive.

Post Covid the government increased the guarantee to 75% of NPAs but kept the cap at 15% of total loans. However what is worrying bankers is the fact that these loans are without any collateral which means the only recourse to recovery in some cases is the guarantee provided by the government.

Bankers say with large corporate stress mostly identified and loans to individuals individuals mostly collateralised, it could be the MSME sector which could see a spike in NPAs.