The Reserve Bank of India (RBI) has raised a red-flag on the spike in non-performing assets (NPAs) under the government's flagship scheme to support micro enterprises in the country -- the Pradhan Mantri Mudra Yojana.
According to union finance ministry sources, RBI has cautioned the ministry that the scheme might turn-out to be the next big source of NPAs, which have plagued the banking system.
The central bank has flagged that bad loans under PMMY have risen to Rs 11,000 crore. As per the annual report of PMMY, 2017-18, total disbursements under the scheme stood at Rs 2.46 trillion in FY 18.
Out of this, 40 per cent were disbursed to women entrepreneurs and 33 per cent to social categories. More than 4.81 crore micro borrowers have benefited through PMMY during the year FY2017-18
CNBC-TV18 caught up with SS Mundra, former deputy governor of RBI; Renu Kohli, economist and BP Sharma, former executive director of Bank of India, to discuss whether RBI is right in raising the red flag or are its fears overstated.
"The fact remains that this problem of overreach is always inherent in any kind of scheme that is purely target driven. I think in the long history of banking, we have seen this kind of problems coming from time to time. In the old days, it used to be the IRDP. Even if we look at the agriculture targets, which keeps on increasing from time to time, the similar kind of problems do emerge," Mundra said.
"MSME is a big sector and it has the potential of good growth. So, at times problem lie on both the side. If there is a target and the race is just to achieve it without really creating the capability of picking up the right candidates and assisting them in right manner, then I think it can be a very different picture," he added.
"On the one hand, you have a growth cycle decelerating and on the other hand, you have accelerated credit being disbursed. No matter the stress in the MSMEs or whatever, as an economist I would look at those two things as a regulator or as a policy maker I would definitely be cautious. As a regulator or as a policy maker, I would worry as growth is decelerating and a rapid acceleration in credit no matter what the segment is, definitely warrants caution," Kohli said.
Sharma said, "Traditionally the delinquency percentage of MSME sector was not low. In the interest of country, micro units must be successful as it has series of advantages. But without the intervention in other area, we just drive the public sector to achieve the number and we will end up with NPA numbers."