The Mudra loans could be referred as the key drivers for Medium, small and micro enterprises sector because lending to the space provides major support in to system credit growth in India.
According to JM Finanical, the total disbursements under the ambit of Mudra or micro units development and refinance agency, amount to Rs 6.5 lakh crore during April 2015 to September 2018, while the quantum of loans actually refinanced by Mudra is only Rs 10,500 crore.
Moreover, the disbursement target of Mudra for the current fiscal year is aggressive at Rs 3 lakh crore, and PSU banks are targets to achieve this outcome. However, the analysts believe, the targeted lending approach may not be sufficient to cover a potential upsurge in credit costs.
On the other hand, private banks have largely been spearheaded the growth in MSME lending followed by NBFCs, while the public sector banks were seen as losing the grip over market.
Moreover, the better asset quality in MSME loans is skewed starkly in favour of NBFCs and private banks and within the MSME space, asset quality is markedly superior for lower-ticket-sized loans.
Disbursements growing aggressively
The Mudra has mostly managed to achieve its disbursement targets since inception in FY16. But most loans disbursed under the scheme are not eligible to utilise the benefit of refinance. Although media reports indicate that non-performing loans (NPLs) in under the scheme are moderate at 4.8 per cent.
Moreover, average ticket sizes for Mudra loans disbursed by PSU banks are much higher than NBFC and private bank peers. The data suggests that the average ticket size disbursement under the scheme was Rs 142,000, Rs 78,000 and Rs 44,000 for PSU banks, NBFCs and private banks respectively.
Portfolio guarantee scheme
The credit guarantee fund for micro units (CGFMU) is a fund set-up by the government to provide payment guarantees to lenders against defaults in micro loans. The government has allocated Rs 3,000 crore for Mudra portfolio guarantees. A credit guarantee is provided on the default amount, in respect of the eligible facility extended by the lender: The first loss up to 5 per cent of the portfolio is to be borne by the lender and of the remaining portfolio, the guarantee coverage is restricted to 50 per cent of the default amount subject to a cap of 15 per cent of the total portfolio.
As of September, out of Rs 6.5 lakh crore amount, which was disbursed under the Mudra loans, Rs 65,000 crore is covered by the portfolio guarantee mechanism.
Although, portfolio guarantees maybe a credible line of defence against asset quality pressures, the corpus allocated and the total portfolio covered under the scheme may be below comfort levels, in our view.