TAG: GS 3: ECONOMY
THE CONTEXT: Finance Minister recently informed the Lok Sabha about the significant decline in Non-Performing Assets (NPAs) related to Mudra loans in the financial year 2023-24.
EXPLANATION:
- This reduction marks a positive trend in the management and recovery of these loans, which are a critical component of India’s financial inclusion strategy.
Mudra Loans: An Overview
- Mudra loans are designed to support micro and small enterprises in India by offering collateral-free loans.
- They are provided under the Pradhan Mantri Mudra Yojana (PMMY).
- These loans are aimed at promoting entrepreneurship, particularly among underserved segments of society, including women, scheduled castes, scheduled tribes, and other marginalized communities.
- The loans are categorized into three segments based on the amount: Shishu (up to ₹50,000), Kishore (₹50,001 to ₹5 lakh), and Tarun (₹5 lakh to ₹10 lakh).
Trend of NPAs in Mudra Loans
- The Finance Minister reported a noticeable decline in NPAs on Mudra loans in 2023-24, which have fallen to 3.4%.
- This represents a significant improvement compared to previous years:
- 77% in 2020-21
- 89% in 2019-20
- 76% in 2018-19
- This downward trend is indicative of better loan management and recovery practices within the public sector banks.
- It also reflects the success of various policy measures and monitoring mechanisms put in place to ensure that these loans are utilized effectively and repaid on time.
Performance in Private Sector Banks
- In addition to the public sector banks, private sector banks have also shown a significant improvement in the management of Mudra loans.
- The NPAs in these banks have reduced to 0.95% in 2023-24, down from a peak of 1.77% in 2020-21 and 0.67% in 2018-19.
- This decline suggests that private sector banks have adopted more rigorous lending and recovery practices, contributing to overall financial stability.
Implications for Financial Inclusion and Economic Growth
- The reduction in NPAs on Mudra loans has several important implications:
- Enhanced Financial Stability: Lower NPAs indicate improved loan repayment behavior among borrowers, which strengthens the financial health of banks and reduces the risk of financial instability.
- Boost to Entrepreneurship: By ensuring that funds are effectively utilized and repaid, the Mudra scheme continues to empower micro and small enterprises, fostering entrepreneurship and economic growth at the grassroots level.
- Increased Confidence in Lending: The declining NPA trend boosts confidence among lenders, encouraging them to continue supporting small businesses with the necessary financial resources.
Sahara Deposits and Regulatory Oversight
- During the same parliamentary session, Finance Minister also addressed concerns regarding the Sahara Group’s depositors.
- She informed the Lok Sabha that the Serious Fraud Investigation Office (SFIO) is conducting a detailed investigation into the matter, especially focusing on why a large number of investors have not come forward to claim their deposits.
- The Supreme Court is closely monitoring all matters related to the Sahara Group, and the government is acting in accordance with the Court’s directives.
- The Finance Minister emphasized that the SFIO is not only investigating the reasons behind the unclaimed deposits but also the overall financial mismanagement within the Sahara Group.
- This ongoing investigation highlights the government’s commitment to protecting investors’ interests and ensuring transparency and accountability in financial practices.
Pradhan Mantri MUDRA Yojana (PMMY)
- Pradhan Mantri MUDRA Yojana (PMMY) is a scheme launched by the Hon’ble Prime Minister in 2015.
- It aims to provide loans up to 10 lakhs to the non-corporate, non-farm small/micro enterprises.
- These loans are classified as MUDRA loans under PMMY.
- These loans are given by Commercial Banks, RRBs, Small Finance Banks, MFIs and NBFCs.
- Under the aegis of PMMY, MUDRA has created three products namely ‘Shishu’, ‘Kishore’ and ‘Tarun’ to signify the stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur and also provide a reference point for the next phase of graduation / growth.