Table of Contents
WHAT EX RBI GOVERNOR SAID
- Rajan said “…a larger number of [the] bad loans originated in the period [of] 2006-2008.” That will likely be used as ammunition by the ruling Bharatiya Janata Party to target the opposition Congress.
- The Narendra Modi-led BJP government has long claimed that its Manmohan Singh-led Congress predecessor was largely to blame for Indian banks’ NPA crisis.
- This revelation was part of the former Reserve Bank of India governor’s written response to a parliamentary panel, one full of stark, biting comments on Indian banks’ non-performing assets (NPAs).
ISSUE
- Former RBI Governor Raghuram Rajan has cautioned that the next crisis in India’s banking sector could come from loans given to the unorganised 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 Rs. 6.37 lakh crore has been disbursed under the 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.
WHAT IS MUDRA YOJANA OF NARENDRA MODI-LED CENTRAL GOVERNMENT?
THERE ARE THREE TYPES OF LOANS UNDER PMMY: Loans up to Rs 50,000 are categorized as SHISHU Loans from Rs 50,001 to Rs 5 lakh are categorized as KISHORE Loans from Rs 5,00,001 to Rs 10 lakh are categorized as TARUN While there is no processing fee for Shishu and Kishore, Tarun loan attracts a fee of 0.5 per cent of the loan amount (plus applicable tax).
THE OBJECTIVE OF MUDRA SCHEME MUDRA
loans are available for non-agricultural activities and activities allied to agriculture such as dairy and poultry. It aims to fund those who have a business plan to generate income from a non-farm activity — like manufacturing, processing, or trading — but don’t have enough capital to invest. PMMY scheme also puts in place MUDRA Bank which monitors the network of microfinance institutions and also helps to register new institutions as well.
OBJECTIVES OF MUDRA
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- MUDRA scheme aims to reduce the unemployment by providing micro enterprises with credit facility which will not only increase the country’s GDP but also create jobs.
- The scheme also aims to boost the financial inclusion by taking the last mile credit delivery to micro businesses. It also works on the entry of the informal economy into the formal sector as most of the time income from the informal sector is not taxed
INDIA CAN PREVENT RECURRENCE OF NPA CRISIS IN FUTURE
- Public sector bank boards are still not adequately professionalized, and the government rather than a more independent body still decides board appointments, with the inevitable politicization. Eventually strong boards should be entrusted with all decisions but held responsible for them.
- Compensation structures in PSBs also need rethinking, especially for high level outside hires. Internal parity will need to be maintained. There will be internal resistance, but lakhs of crores of national assets cannot be held hostage to the career concerns of a few.
- Risk management processes still need substantial improvement in PSBs. Compliance is still not adequate, and cyber risk needs greater attention.
RISING NPA
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. Banks wrote off a record Rs 1.44 lakh crore of bad loans in 2017-18.
WHY DID THE NPAS OCCUR?
- Over-optimism
- Slow Growth – Unfortunately, growth does not always take place as expected. The years of strong global growth before the global financial crisis were followed by a slowdown, which extended even to India
- Loss of Promoter and Banker Interest
- Once projects got delayed enough that the promoter had little equity left in the project, he lost interest.
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