PROBLEM WITH MUDRA LOANS AND RISING NPA - FUTURE BANKING CRISIS
BACKGROUND
Former RBI governor "Raghuram Rajan's" wrote a 17-page note. He wrote this note in a response of government parliamentary committee.
By this note, he's giving an answer of the government question. In this 17-page note, he wrote about the NPA(Non Performing Assets).
WHAT EXACTLY ARE NON-PERFORMING ASSETS?
Suppose bank give some loan to some person. Loan always given in such interest that Bank will earn some amount from that.
If Interest not come (due to 'n' number of issues). So for Bank that assets (money) is not performing and hence called Non-Performing Assets.
WHAT EX RBI GOVERNOR SAID
Rajan Said..."a large number of the bad loans originated in the period of 2006-2008. With these lines, he also added "that will likely by used as ammunition (a weapon) by the ruling BJP to target the opposition congress.
He also mentioned that "What Previous government did that no doubt create this problem". But what the current government is doing currently is also dangerous. He mentioned that the "Distribution of Mudra Loans" is not in a controlled way. Thus will created a BAD NPA in large number. and the government which came in future has to face a difficult situation.
ISSUE
Former RBI Governor Raghuram Rajan has cautioned that the next crisis in India’s banking sector could come from loans given to the unorganized micro and small businesses, called MUDRA loans, and credit extended through the Kisan credit card.
MUDRA loans are offered under the Prime Minister Mudra Yojana or PMMY, launched in 2015 by the NDA government.
A total of ₹6.37 lakh crore has been disbursed under the scheme by public and private sector banks, regional rural banks and micro-finance institutions till date, as per data from the Micro Units Development and Refinance Agency (MUDRA) website.
Already thousands of crore money already converted into NPA. and If this 6.37 lakh crore(which is till now) will converted into NPA then there will be crisis in Banking Industry.
Rajan highlighted that the "Government should focus on sources of the next crisis, not just the last one. In particular, government should refrain from setting ambitious credit targets or waiving loans".
According to PM of India - "Banks have given Rs 6 lakh crore Mudra Loans to 12 -crore beneficiaries"
WHAT IS MUDRA YOJNA SCHEME?
There are three types of loans under PMMY.
While there is no processing fee for Shishu & Kishore. Tarun loan attracts a fee of 0.5 percent of the loan amount (plus applicable tax).
OBJECTIVE OF MUDRA LOANS
MUDRA Loans are available for non-agricultural activities and activities allied to agriculture such as dairy and poultry.
It aims to fund those who have a business plan to generate income from a non-farm activity but don't have enough capital to invest.
With MUDRA Scheme - The government thinks that "If they get money" - GDP Rate get increases and also employment get increases and also will increase the financial inclusion ( as if he earn money he will fill the tax also ).
Rajan mentioned - Idea was good. But it was implemented in a very large scale and in uncontrolled way.
INDIA CAN PREVENT RECURRENCE OF NPA CRISIS IN FUTURE
Rajan mentioned - currently the appointment of chairman and other trustee in Banks appointed by Government which is not a good. He stated, an independent body needs to be created where there should be no influence of government.
RISING NPA
The NPAs of the 38 listed banks collectively crossed Rs 10.71 lakh crore in the fourth quarter of fiscal year.
WHY DID THE NPAs OCCUR?
Over Optimism: Banks think that growth of bank increases if we give more loans.Raghuram Rajan blames 'over optimistic bankers' for bad loans, NPA mess.“A large number of bad loans originated in the period 2006-2008 when economic growth was strong... it is at such times that banks make mistakes,” he wrote.
‘Small loans is another crisis in the making’
For more information, you can access below links:
https://www.businesstoday.in/sectors/banks/raghuram-rajan-mudra-scheme-loans-npa/story/282254.html
https://www.thehindu.com/business/Economy/raghuram-rajan-blames-over-optimistic-bankers-growth-slowdown-for-bad-loans/article24925803.ece
Above Information is as per data available in news till the date when I am posting this.
For Other Topics visit - http://learn2ogether.blogspot.com
Former RBI governor "Raghuram Rajan's" wrote a 17-page note. He wrote this note in a response of government parliamentary committee.
By this note, he's giving an answer of the government question. In this 17-page note, he wrote about the NPA(Non Performing Assets).
WHAT EXACTLY ARE NON-PERFORMING ASSETS?
Suppose bank give some loan to some person. Loan always given in such interest that Bank will earn some amount from that.
If Interest not come (due to 'n' number of issues). So for Bank that assets (money) is not performing and hence called Non-Performing Assets.
WHAT EX RBI GOVERNOR SAID
Rajan Said..."a large number of the bad loans originated in the period of 2006-2008. With these lines, he also added "that will likely by used as ammunition (a weapon) by the ruling BJP to target the opposition congress.
He also mentioned that "What Previous government did that no doubt create this problem". But what the current government is doing currently is also dangerous. He mentioned that the "Distribution of Mudra Loans" is not in a controlled way. Thus will created a BAD NPA in large number. and the government which came in future has to face a difficult situation.
ISSUE
Former RBI Governor Raghuram Rajan has cautioned that the next crisis in India’s banking sector could come from loans given to the unorganized micro and small businesses, called MUDRA loans, and credit extended through the Kisan credit card.
MUDRA loans are offered under the Prime Minister Mudra Yojana or PMMY, launched in 2015 by the NDA government.
A total of ₹6.37 lakh crore has been disbursed under the scheme by public and private sector banks, regional rural banks and micro-finance institutions till date, as per data from the Micro Units Development and Refinance Agency (MUDRA) website.
Already thousands of crore money already converted into NPA. and If this 6.37 lakh crore(which is till now) will converted into NPA then there will be crisis in Banking Industry.
Rajan highlighted that the "Government should focus on sources of the next crisis, not just the last one. In particular, government should refrain from setting ambitious credit targets or waiving loans".
According to PM of India - "Banks have given Rs 6 lakh crore Mudra Loans to 12 -crore beneficiaries"
WHAT IS MUDRA YOJNA SCHEME?
There are three types of loans under PMMY.
- Loans upto Rs 50,000 are categorized as SHISHU.
- Loans from Rs 50,001 to Rs 5 Lakh are categorized as KISHORE.
- Loans from Rs 5,00,001 to Rs 5 Lakh are categorized as TARUN.
While there is no processing fee for Shishu & Kishore. Tarun loan attracts a fee of 0.5 percent of the loan amount (plus applicable tax).
OBJECTIVE OF MUDRA LOANS
MUDRA Loans are available for non-agricultural activities and activities allied to agriculture such as dairy and poultry.
It aims to fund those who have a business plan to generate income from a non-farm activity but don't have enough capital to invest.
With MUDRA Scheme - The government thinks that "If they get money" - GDP Rate get increases and also employment get increases and also will increase the financial inclusion ( as if he earn money he will fill the tax also ).
Rajan mentioned - Idea was good. But it was implemented in a very large scale and in uncontrolled way.
INDIA CAN PREVENT RECURRENCE OF NPA CRISIS IN FUTURE
Rajan mentioned - currently the appointment of chairman and other trustee in Banks appointed by Government which is not a good. He stated, an independent body needs to be created where there should be no influence of government.
RISING NPA
The NPAs of the 38 listed banks collectively crossed Rs 10.71 lakh crore in the fourth quarter of fiscal year.
WHY DID THE NPAs OCCUR?
Over Optimism: Banks think that growth of bank increases if we give more loans.Raghuram Rajan blames 'over optimistic bankers' for bad loans, NPA mess.“A large number of bad loans originated in the period 2006-2008 when economic growth was strong... it is at such times that banks make mistakes,” he wrote.
‘Small loans is another crisis in the making’
For more information, you can access below links:
https://www.businesstoday.in/sectors/banks/raghuram-rajan-mudra-scheme-loans-npa/story/282254.html
https://www.thehindu.com/business/Economy/raghuram-rajan-blames-over-optimistic-bankers-growth-slowdown-for-bad-loans/article24925803.ece
Above Information is as per data available in news till the date when I am posting this.
For Other Topics visit - http://learn2ogether.blogspot.com
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