Thread by @CapOrbit

A thread on Mudra loans. They are in the news again after the RBI flagged off the fear of NPAs in Mudra loans.

Most people do not know (including the press and the sell-side) that the word "Mudra" has 2 meanings.

1. Mudra loans (as spoken of in press)
2. MUDRA, the company

Mudra loans - basically optics/marketing exercise. Quoting from the Mudra website - "All loans sanctioned on or after April 08, 2015 up to a loan size of 10 lakh for non-farm income generating activities will be branded as PMMY loans."
Imp. point - Such loans are not new

From the Mudra FY18 AR:

Imp. to note - Rs. 5.44 lakh crore disbursed by other institutions including banks, NBFCs, MFIs, not lending by the government specifically

So this figure is for PMMY loans / also called as Mudra loans in general.

Now let us see the other Mudra - Micro Units Development & Refinance Agency Ltd

This is refinancing institution that will provide refi support to the above mentioned institutions.

This is the balance sheet of Mudra, the company. Around Rs. 17,300 cr in FY18 was the assets side.

See the contrast between Mudra (the marketing exercise) and Mudra (the company)?

To begin with this was not explicit government funding to borrowers. But the popular perception is otherwise.

With the latest warnings, the marketing is possibly backfiring for the government. People perceive direct risk to be on the government, but it was never so.

So, now the negativity is ascribed to the government as much as the positivity was.

Narratives are always interesting!

This is the balance sheet of Mudra, the company. Around Rs. 17,300 cr in FY18 was the assets side.

See the contrast between Mudra (the marketing exercise) and Mudra (the company)?

To begin with this was not explicit government funding to borrowers. But the popular perception is otherwise.

With the latest warnings, the marketing is possibly backfiring for the government. People perceive direct risk to be on the government, but it was never so.

So, now the negativity is ascribed to the government as much as the positivity was.

Narratives are always interesting!

@SalariedTaxpay1 alerted me to a guarantee given by govt. I had missed this angle. From the Mudra website, one sees an entity called:
“Credit Guarantee Fund for Micro Units”

@SalariedTaxpay1 Guarantees given until FY18 were ~ Rs. 40k crore. This is in comparison to the Rs. 5.44 lakh crore cumulative amount disbursed until FY18 end.

I do not see institutions other than banks here. That is confusing because NBFCs also give PMMY loans.

@SalariedTaxpay1 In any case, the direct risk borne by the govt. is not as much as what you would think if you read newspaper articles in the last week.

This is more a problem for the lending institutions themselves. Some of them are PSU banks and there is indirect risk to taxpayer money.

addendum - with repayments along the way, the total outstanding amount as of FY18 end should be lesser than Rs. 5.44 lakh crore.

even then, numbers involved appear to be much larger than the backstop.

5% first loss for the institution and 50% of the subsequent loss to be covered by Guarantee.

From the gazette notification