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Small loans could turn bad: Rajan
Why in the news ?
- 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.
More in the news
- Under the MUDRA scheme, a total of Rs. 6.37 lakh crore has been disbursed by public and private sector banks, regional rural banks and micro-finance institutions till date.
- In a note on bank non-performing assets (NPAs) prepared, Dr. Rajan said the government should refrain from setting ambitious credit targets or from waiving loans.
- Rajan said that both MUDRA loans as well as the Kisan Credit Card, while popular, have to be examined more closely for potential credit risk.
- He also flagged the Credit Guarantee Scheme for MSMEs, run by the Small Industries Development Bank of India, calling it “a growing contingent liability” that needs to be examined with urgency.
MUDRA
- Pradhan Mantri Mudra Yojana (PMMY) is a flagship scheme of Government of India to “fund the unfunded” by bringing such enterprises to the formal financial system and extending affordable credit to them.
- It enables a small borrower to borrow from all Public Sector Banks such as PSU Banks, Regional Rural Banks and Cooperative Banks, Private Sector Banks, Foreign Banks, Micro Finance Institutions (MFI) and Non Banking Finance Companies (NBFC) for loans upto Rs 10 lakhs for non-farm income generating activities.
- Under the aegis of Pradhan Mantri MUDRA Yojana, MUDRA has already created the following products / schemes.
- Shishu : covering loans upto 50,000/-
- Kishor : covering loans above 50,000/- and upto 5 lakh
- Tarun : covering loans above 5 lakh and upto 10 lakh
- The interventions have been named 'Shishu', 'Kishor' and 'Tarun' to signify the stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur and also provide a reference point for the next phase of graduation / growth to look forward to.
- It would be ensured that at least 60% of the credit flows to Shishu Category Units and the balance to Kishor and Tarun Categories.
Source
The Hindu.