India's small-loan customers are far better at repayments than the others

Only 3.38% of loans under a scheme for small businesses turned bad in seven years. The overall figure was double that
India's small-loan customers are far better at repayments than the others
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Indians who borrowed relatively smaller amounts—of up to 10 lakh rupees ($12,250)—from banks have a healthier repayment record than others.

Since the launch of Mudra, targeting small businesses, in 2015, the total bad loans under it stood at Rs46,053 crore, or 3.38% of the overall disbursal till June 30, 2022. This was less than half of the Indian banking sector’s NPAs of 5.97% for the year ended March 31, 2022, according to The Indian Express.

Mudra, officially called the Pradhan Mantri Mudra Yojana, provides loans to micro, small, and medium enterprises through public, private, foreign, and state cooperative banks, besides regional rural and small finance schemes.

Its three products are Shishu (loans of upto Rs50,000), Kishore (Rs50,000-Rs5 lakh), and Tarun (Rs5 lakh-Rs10 lakh). They do not require any collateral, which makes them look risky.

Yet, the best of the lot was the Shishu borrower, according to the newspaper which sourced its data through a Right to Information plea. Only 2.25% of this segment’s dues turned bad in seven years.

The problem of NPAs at Indian banks

For a decade, Indian banks have been battling bad loans. In the past five years, they have managed to reduce NPAs, but not by recovering loans. The lenders simply wrote them off, bringing down the NPA figure by Rs10.09 lakh crore in this period.

The Indian Express’s RTI findings showed that public sector banks held almost 46% of all Mudra loans in value terms till June 30 this year. Of these, loans of Rs31,025 crore turned bad. This was 4.98% of their outstanding Rs6.23 lakh crore.

Private banks’ NPAs in the past seven years, however, stood at Rs6,469.2 crore, only 1.32% of their outstanding.

The government bank’s average loan size, too, was much larger than that of an average private bank. The private sector had a 60% share of the healthiest Shishu category.