RBI raises concerns over bad loans from Mudra Yojana

The Reserve Bank of India on November 27, 2019 raised concerns over increasing bad loans from the Pradhan Mantri Mudra Yojana. RBI believes that there is an urgent need to monitor the loans sanctioned under Mudra Yojana.

Concerns

According to RBI, the percentage of MUDRA loans were at 2.52% in 2017-18, It has now raised to 2.89% in 2018-19. It also says that the number of loans being sanctioned under the scheme has increased greatly.

In 2017 the loans provided under Shishu category were 83,892 and it increased to 1,39,652 in 2019. The loans provided under Kishore category were 51,063 in 2017 and increased to 99,868 in 2019.

Also, RBI stated that out of 182 million MUDRA loans sanctioned, 3.63 million accounts were defaulted.

Consequences

The federal bank believes that if left unsolved, this may lead to unsustainable credit growth increasing financial risks.

The Mudra loans are currently being given by regional, commercial, small finance, cooperative banks, NBFC and micro finance banks. However, the stress of bad loans is increasing greatly on microfinance sector.

It is essential for the microfinance sector to adapt to the external developments, risks, income inconsistencies and technological changes to reduce the raising numbers of bad loan.

Suggestions

RBI highlighted the Credit Guarantee Fund Trust for Micro and Small Enterprises run by SIDBI. The bank also believes that small loans that are being provided under Shishu category would not contribute much towards income generation.

Month: Current Affairs - November, 2019