Pradhan Mantri Mudra Yojana : Analysis


  • MUDRA stands for Micro Units Development and Refinance Agency
  • Ministry: Ministry of Finance
  • Objective: The core objective of the bank is to fund the unfunded. It will finance to “Last Mile Financiers” of small/micro businesses. The lending priority will be given to SC/ST enterprises


To address the three segments, MUDRA Bank has launched three loan instruments:

  • Shishu: covers loans upto Rs 50,000/-
  • Kishor: covers loans above Rs 50,000/- and upto Rs. 5 lakh
  • Tarun: covers loans above Rs 5 lakh and upto Rs 10 lakh


Analysis of the issue

  • The loans have been sanctioned under the Pradhan Mantri Mudra Yojana, which aims to ‘fund the unfunded’.
  • Given that these are small loans up to ₹10 lakh each, with the borrowers mostly from the informal sector, banks have to monitor them very closely.
  • It is debatable whether banks have the resources and manpower to do this when they are chasing the bigger borrowers for business and, increasingly these days, recoveries.
  • The risk is that these small-ticket loans will drop under the radar and build into a large credit issue in course of time. The same logic holds true for crop loans made through Kisan Credit Cards.
  • Recognition is the first step in a clean-up, and unless banks are cleaned of their non-performing loans, they cannot make fresh loans.


Raghurm Rajan Comment:

Former RBI Governor Raghuram Rajan has flagged three major sources of potential trouble:

  • Mudra credit, which is basically small-ticket loans granted to micro and small enterprises;
  • lending to farmers through Kisan Credit Cards; and
  • contingent liabilities under the Credit Guarantee Scheme for MSMEs, run by the Small Industries Development Bank of India.