RBI deputy guv M K Jain flags concerns over rising stress in Mudra loans

Banks need to focus on repayment capacity at the appraisal stage and “monitor the loans through the life cycle much more closely, said M K Jain

Economy News: Reserve Bank of India (RBI) Deputy Governor M K Jain on Tuesday expressed concern about the rising bad debt level in Mudra loans. Speaking at a SIDBI event on microfinance, Jain said with the growing mobilisation of financial services, banks must enhance the capabilities of borrowers so that individuals in the new income group could not merely avail the offered services but are also capable of demanding preferred products and service suitable to their needs and choices.

“Mudra is a case in point. While such a massive push would have lifted many beneficiaries out of poverty, there have been some concerns at the growing level of non-performing assets (NPAs) among these borrowers,” Jain said.

Banks, therefore, need to focus on repayment capacity at the appraisal stage and “monitor the loans through the life cycle much more closely”, he said. This is not the first time a central bank official is warning against the rising bad debt to banks.

In a meeting with public sector bank chiefs in July, RBI Governor Shaktikanta Das had red-flagged the high bad debt in the collateral free loans, according to sources. There are three categories of loans under Mudra: Shishu, covering loans up to Rs 50,000; Kishor, covering loans above Rs 50,000 and up to Rs 5 lakh; and Tarun, covering loans above Rs 5 lakh and up to Rs 10 lakh…