MUDRA loans is another crisis in the making, says Raghuram Rajan

Former RBI Governor Raghuram Rajan has cautioned that the next crisis in India’s banking sector could come from loans given to the unorganized micro and small businesses, called MUDRA loans, and credit extended through the Kisan credit card.

MUDRA loans are offered under the Prime Minister Mudra Yojana or PMMY, launched in 2015 by the NDA government.

A total of ₹6.37 lakh crore has been disbursed under the MUDRA scheme by public and private sector banks, regional rural banks and micro-finance institutions till date, as per data from the Micro Units Development and Refinance Agency (MUDRA) website.

His warnings come at a time the Indian banking is reeling under an unprecedented bad loans problem. The NPAs of the 38 listed banks collectively crossed Rs 10.17 lakh crore in the fourth quarter of the last fiscal, with the 21 public sector banks (PSBs) accounting for the bulk of it.

Besides, PSBs have collectively written-off over Rs 1,154 crore in NPAs in the last fiscal till December 31, which was a 103% jump from the amount written off in 2016-17.

The PMMY Scheme was launched in April 2015. The scheme’s objective is to refinance collateral-free loans given by the lenders to small borrowers.

The scheme, which has a corpus of Rs 20,000 crore, can lend between Rs 50,000 and Rs 10 lakh to small entrepreneurs.

Banks and MFIs can draw refinance under the MUDRA Scheme after becoming member-lending institutions of MUDRA.

Mudra Loans are available for non-agricultural activities up to Rs. 10 lakh and activities allied to agriculture such as Dairy, Poultry, Bee Keeping etc, are also covered.

Mudra’s unique features include a Mudra Card which permits access to Working Capital through ATMs and Card Machines.

There are three types of loans under PMMY:

  • Shishu (up to Rs.50,000).
  • Kishore (from Rs.50,001 to Rs.5 lakh).
  • Tarun (from Rs.500,001 to Rs.10,00,000).

Objectives of the scheme:

Fund the unfunded: Those who have a business plan to generate income from a non-farm activity like manufacturing, processing, trading or service sector but don’t have enough capital to invest can take loans up to Rs 10 lakh.

Microfinance institutions (MFI) monitoring and regulation: With the help of MUDRA bank, the network of microfinance institutions will be monitored. New registration will also be done.

Promote financial inclusion: With the aim to reach Last mile credit delivery to micro businesses taking help of technology solutions, it further adds to the vision of financial inclusion.

Reduce jobless economic growth: Providing micro enterprises with credit facility will help generate employment sources and an overall increase in GDP.

Integration of Informal economy into Formal sector: It will help India also grow its tax base as incomes from the informal sector are non-taxed.

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