Macro Moves

Rise of Mudra Loan NPA Issue

Created on 28 Nov 2019

Wraps up in 2 Min

Read by 10k people

Updated on 10 Sep 2022

rising NPA's in mudra loan scheme

Clouds of rising NPAs are hovering over Mudra scheme. How serious is the Mudra loan NPA issue and what can be done?

Read and find out below

Entrepreneurship is not just a buzzing trend around the world, it’s also a scapegoat for Government of India to veil increasing joblessness (which is called ‘Unemployment Rate’ sophistically). And, since we’re not trying to create any controversy here, we’ll let you know about the positive side of it as well (later in this article).

But, the reason behind writing this newsletter is the intent of certain people who in future might become the reason for the end of this scheme. Yes, they are those people who take loans by disguising themselves as beneficiaries and later consume the money themselves (instead of starting a small scale business, for which they actually received the money).

What caused defaults in Mudra loan? - Prominently Increasing Misuse

India has earned a not so good name for itself due to its people involved in misutilization of almost everything. Although, only a few people do it and rest suffer inadvertently but, that’s how it is. It is no different in the case of Mudra scheme. Our government tried to keep up with the global trend and promoted Mudra Scheme but, now due to increasing Mudra loan NPA, it is learning a different lesson.

In a recent parliamentary reply, it was disclosed that the defaults in Mudra loans have gone up since last year and presently they amount to more than Rs. 3.1 Lakh Crores! This is sequential to the 16 Basis Points rise in Mudra loan NPA ratio in 2018-19 over previous year.

RBI Flagging & Intervention

Former Governor of Reserve Bank of India Mr. Raghuram Rajan had pointed out last year that the advances of Mudra scheme needed to be examined more closely. He also disapproved numerous loans in the same context.

By the way, current RBI Governor Shaktikanta Das held a meeting few months back with various banks. That was regarding rising defaults in Mudra loans due to lenient monitoring by the banks. Now, since the figures of NPA’s are backing this up something really needs to be done on an urgent basis to fix it.

Proper analysis can be the solution!

As they say, there’s nothing great in cribbing over a problem, greatness lies in suggesting an appropriate solution. Now, since we have pointed this out and unfortunately we are not the ones who can fix this as an authority, all we can do is suggest a way out.

There’s a clear-cut simple solution to this. Just the way venture capitalists analyze a startup and then invest in it, the approval for Mudra loans should be given post a thorough analysis and probably deserving potential entrepreneurs should be redirected towards incubation centers.

Hope you liked this information. Comment below with your opinions/suggestions.

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Deb P Samaddar

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