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Banks to review mudra loan book

Topics Covered:

  1. Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
  2. Development processes and the development industry the role of NGOs, SHGs, various groups and associations, donors, charities, institutional and other stakeholders.
  3. Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
  4. Inclusive growth and issues arising from it.


Banks to review mudra loan book


What to study?

  • For Prelims: PMMY- key features.
  • For Mains: Significance of the scheme and concerns raised over loans disbursed under the scheme, how can these loans be prevented from turning into NPAs.


Context: The finance ministry has asked the banks to review all loans sanctioned under the Pradhan Mantri Mudra Yojana (PMMY or Mudra loan scheme), as the non-performing assets (NPA) have crossed Rs 11,000 crore within three years of the launch of the scheme.



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?

In order to push the scheme, there had been an overemphasis on banks to meet loan disbursal targets. In the race to meet the target, the credentials of loan-seekers were not being properly verified and in many instances, loans were being given without any collateral or security, making it difficult for the banks to go after defaulters.


About the Pradhan Mantri MUDRA Yojana (PMMY) scheme:

The PMMY Scheme was launched in April, 2015. The scheme’s objective is to refinance collateral-free loans given by the lenders to small borrowers.

  • The scheme, which has a corpus of Rs 20,000 crore, can lend between Rs 50,000 and Rs 10 lakh to small entrepreneurs.
  • Banks and MFIs can draw refinance under the MUDRA Scheme after becoming member-lending institutions of MUDRA.
  • Mudra Loans are available for non-agricultural activities upto Rs. 10 lakh and activities allied to agriculture such as Dairy, Poultry, Bee Keeping etc, are also covered.
  • Mudra’s unique features include a Mudra Card which permits access to Working Capital through ATMs and Card Machines.


There are three types of loans under PMMY:

  1. Shishu (up to Rs.50,000).
  2. Kishore (from Rs.50,001 to Rs.5 lakh).
  3. Tarun (from Rs.500,001 to Rs.10,00,000).


Objectives of the scheme:

Fund the unfunded: Those who have a business plan to generate income from a non-farm activity like manufacturing, processing, trading or service sector but don’t have enough capital to invest can take loans up to Rs 10 lakh.

Micro finance institutions (MFI) monitoring and regulation: With the help of MUDRA bank, the network of microfinance institutions will be monitored. New registration will also be done.

Promote financial inclusion: With the aim to reach Last mile credit delivery to micro businesses taking help of technology solutions, it further adds to the vision of financial inclusion.

Reduce jobless economic growth: Providing micro enterprises with credit facility will help generate employment sources and an overall increase in GDP.

Integration of Informal economy into Formal sector: It will help India also grow its tax base as incomes from the informal sector are non-taxed.


Sources: the hindu.

Mains Question: It has been cautioned that the next crisis in India’s banking sector could come from MUDRA loans, and credit extended through the Kisan credit card scheme. Critically examine.