Days after former Finance Minister P. Chidambaram criticised the Centre's MUDRA loan scheme, saying it was “practically worthless” in promoting businesses, former Chief Economic Adviser Prof. K V Subramanian has replied that it is surprising that the former minister is questioning the impact as data closely shows how positively it has impacted the beneficiaries.
Launched in 2015, Pradhan Mantri Mudra Yojana (PMMY) was floated to promote entrepreneurship among people, where loans up to Rs 10 lakh were offered under the scheme to entrepreneurs. Since the introduction of the scheme, many experts, including former RBI Governor Raghuram Rajan, had warned about the possibility of high non-performing assets (NPAs) under the scheme.
Subramanian said the MUDRA loan, which has completed 7 years of its operations, has extended a cumulative amount of Rs 18.83 lakh crore to Rs 34.93 crore loan accounts, primarily benefitting the borrowers from the weaker sections of the society.
Chidambaram, who was the finance minister under the UPA government, had written that the MUDRA loan scheme has been unsuccessful in promoting business. "I have long maintained that the MUDRA loan scheme is practically worthless to promote businesses," Chidambaram said on Twitter. He added: “The State Bank of India has taken pride that in the Tamil Nadu-Puducherry zone, the bank had distributed Rs 1,000 crore to 26,750 MUDRA beneficiaries in 2021-22.”
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Mighty impressive numbers until one do the mathematics, Chidambaram said, adding that the average size of the loan to 26,750 beneficiaries is only Rs 3.73 lakh. “What new business can be started with Rs 3.73 lakh and how many jobs can be created with Rs 3.73 lakh,” he asked.
In the last few years, public sector banks (PSBs), which have been the main channel for the distribution of MUDRA loans, have seen a spike in their bad loans in FY20 even as disbursements saw an appreciable increase, news reports have stated. NPAs, as a percentage of MUDRA loans disbursed by PSBs, increased to 4.80 per cent in FY20 from 3.75 per cent in FY19, as per government data.
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But the Narendra Modi government has maintained that the loan scheme has helped many beneficiaries and that the bad loan percentage has come down in FY22. In a written reply to the Rajya Sabha in this monsoon session, Finance MoS Bhagwat Karad said that bad loans under PMMY as a cumulative percentage of total MUDRA loans disbursed in FY22 decreased to 3.17 per cent from 3.61 per cent in FY21 though still above 2.53 per cent in FY20.
The provisional data shared by the Finance Ministry showed that the share of bad loans in credit disbursed under PMMY by the public sector banks was highest at 4.74 per cent as compared to 1.92 per cent share for small finance banks, 1.14 per cent for private banks, 1.01 per cent for NBFC-microfinance institutions (MFIs), 0.67 per cent for MFIs, and 0.07 per cent for NBFCs, as of March 31, 2022.
It is to be noted that the bad loan volume under the MUDRA loans rose to Rs 34,090.34 crore in the financial year 2020-21, which was 30.7 per cent more than Rs 26,078.43 crore in FY20, and nearly doubled from Rs 17,712.63 crore in FY19, Karad had informed Parliament in the December session.