Mains Paper 3: Economy | Mobilization of resources
From UPSC perspective, the following things are important:
Prelims level: MUDRA scheme
Mains level: NPA Crisis
- The Finance Ministry has asked the banks to review all loans sanctioned under the Pradhan Mantri Mudra Yojana, as the non-performing assets (NPA) have crossed Rs 11,000 crore within three years of the launch of the scheme.
Concerns over MUDRA
- The Mudra loan scheme has done very well.
- However, the rising NPAs under the scheme are a matter of concern.
- It is already three years and there is a need to review how the banks are sanctioning the loans.
- The RBI has already flagged its concerns regarding the bad loans to the government.
What went wrong?
- To push the scheme, there had been overemphasis on the banks to meet loan disbursal targets.
- In the race to meet the target, the credentials of loan-seekers were not being properly verified.
- In many instances, loans were being given without any collateral or security, making it difficult for banks to go after defaulters.
Critical Analysis of PMMY
- Critics of the scheme say that too many best practices in loan origination have been neglected while authorising and disbursing loans.
- Even if loans are sought by business owners genuinely seeking growth and bankers disburse them with an eye on economic development, ensuring repayment is still a challenge.
- First, these loans are unsecured a collateral that could protect the interests of the bank is not required, unless an asset that is purchased can itself serve as collateral.
- Secondly, the scheme is meant for those who need small amounts, but do not have access to such funds.
- But the very nature of the business of such borrowers is susceptible to volatility and annual cycles, not to mention the itinerant ways of some business owners, such as vegetable vendors.
- They may choose one location for their place of business on a day, and another elsewhere in their city the next day.
- Further, the public banking system may not be staffed for work this may entail.
- When it comes to collection, bank staff may choose to go after one loan with outstanding of ₹10 lakh, for example, rather than 10 loans of ₹1,00,000 each.