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Risk of defaults in Mudra loans rising, says Citi

Risk of defaults in Mudra loans rising, says Citi

Risk of defaults in Mudra loans rising, says Citi
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By Ankit Gohel  Nov 28, 2019 11:11:30 AM IST (Published)

As of FY19, cumulative GNPAs since inception in PMMY loans were Rs 176.5 billion, which was 2 percent.

While loan disbursements to micro-entrepreneurs or individuals under Pradhan Mantri Mudra Yojana (PMMY) have seen strong growth in the last three years, the risks of defaults on such credits are also rising, said global brokerage Citi.

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As of November 2019, loans worth more than Rs 1 lakh crore were disbursed during FYTD under the scheme. During FY19, disbursements were worth more than Rs 3 lakh, a growth of 26.5 percent YoY.
"The customer segment which borrows under PMMY could have higher susceptibility to adverse macro conditions leading to business failures as seen during GST transition and demonetisation," Citi said.
There have been concerns regarding the banks' underwriting standards and repayment capabilities of borrowers which might potentially lead to a rise in NPAs, it added.
As of FY19, cumulative GNPAs since inception in PMMY loans were Rs 176.5 billion, which was 2 percent.
First-time borrowers under the category 1 of Mudra scheme (with ticket size less than Rs 50,000) might often need to prioritise meeting emergent needs or expenses over repayments of loans leading to higher defaults, the report said.
"In addition, inefficiencies in lending practices, poor credit appraisal, willful default by borrowers and impaired cash flows due to slowdown also contribute to the higher default rate," the report added.
Earlier, the Reserve Bank of India’s deputy governor MK Jain also flagged off the risk of rising NPAs in Mudra loans and the need for banks to closely monitor the same.
State-run lenders registered 7 percent YoY growth during FY19 in disbursements largely led State Bank of India with a rise of 18 percent on year.
Disbursements by NBFCs and Small Finance Banks have seen higher growth of 74 percent and 40 percent YoY respectively. Overall Private lenders have registered 29 percent on year growth in disbursements.
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