InvestorQ : What are the concerns that the RBI has expressed over the Mudra Loans and how is it likely to impact in the short run?
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What are the concerns that the RBI has expressed over the Mudra Loans and how is it likely to impact in the short run?

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2 years ago
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The RBI deputy governor, M K Jain, has warned of the risks of the proliferation of Mudra loans given by banks and other financers. Jain has suggested that banks should closely monitor their loans under the Mudra category as there are concerns of growing non-performing assets (NPAs) in this segment. Jain was speaking at the SIDBI National Microfinance Congress. Jain also urged that banks must focus on repayment capacity of these borrowers with thorough appraisal and close monitoring.

Mudra loans have a larger social implication as it gives a big push to lift many beneficiaries out of poverty. However, there have been instances of rising NPAs in this sector in the recent past, which is what the RBI has underlined. It may be recollected that the Pradhan Mantri MUDRA Yojana (PMMY) was launched in April 2015 to provide loans up to Rs.10 lakh to non-corporate, non-farm small/micro enterprises. These advances are classified as Mudra loans and given by commercial banks, regional rural banks (RRBs), small finance banks, cooperative banks, micro finance institutions (MFIs) and NBFCs. They can be given to artisans, traders, small shops, women entrepreneurs etc.

What actually has worried the RBI is that the gross NPAs among Mudra loans have gone up from 2.52% to 2.68% over the last one year. But more disconcerting than that is the absolute number of default accounts which stands at nearly 36 lakh accounts. It is these large default accounts that RBI is really worried as it threatens to become a social and economic problem in rural India.

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