 "Finance Minister Arun Jaitley with Finance Secretary Hasmukh Adhia, Chief Economic Advisor Arvind Subramanian, Finance Secretary Amitabh Kant at a Pre-Budget meeting in New Delhi (pic: Dalip Kumar)")
To ensure more money for micro and small enterprises, the Union Cabinet on Wednesday approved conversion of Mudra Ltd (Pradhan Mantri Micro Units Development Refinance Agency), into a bank, beside the setting up of two credit guarantee funds.
The two funds will cater to loans disbursed under the Mudra Yojana and the Stand-Up India scheme, to support women entrepreneurs and those from backward classes. The renamed Mudra agency (to be called the Small Industries Development Bank of India Bank), will be a wholly owned subsidiary of the Small Industries Development Bank of India. It will undertake refinancing operations.
“The department of financial services sought approval to set up two credit guarantee funds. The first one is being established for the Mudra loans and another for Stand Up India. With each passing day, banks have been further activating the loans under Mudra,” said finance minister Arun Jaitley after the meeting.
The said funds are expected to guarantee Rs 1 lakh crore worth of loans to micro and small units in the first instance, and help in reducing risk taken by banks and financial institutions in the case of defaults under the scheme.
The number of beneficiaries under Mudra had reached 17.3 million. “We were keeping track of all direct beneficiaries. Since we are in early January, there is significant headspace, for public and private sector banks to issue loans under the scheme. So I hope more and more people take the financing,” Jaitley added.
For the Mudra credit guarantee fund, the government is looking at a corpus of Rs 3,000 crore. It is going to be settled by the National Credit Guarantee Trustee Company, in existence on a portfolio basis, to a maximum extent of 50 per cent of the amount in default.
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“We expect the banks to pick up credit guarantee fee as far as the portfolio is concerned. The rate of refinance is one per cent and varies according to the risk assessment,” said department of financial services secretary Anjuly Chibb Duggal.
The National Credit Guarantee Trustee Company (NCGTC) will be a wholly-owned company of the Government of India, constituted under the Companies Act to manage and operate various credit guarantee funds.
Three products available under the Mudra Yojana are Shishu, Kishor and Tarun, to signify the stage of growth and funding needs of the beneficiary micro unit or entrepreneur. Shishu covers loans up to Rs 50,000, while Kishor covers above Rs 50,000 and up to Rs 5 lakh. The Tarun category provides loans of above Rs 5 lakh and up to Rs 10 lakh.
The Reserve Bank has allocated Rs 20,000 crore and the first tranche of Rs 5,000 crore has been received by Mudra as refinance.
The 2015-16 Budget had proposed to set up the Mudra Bank and a credit guarantee fund, with a refinance corpus of Rs 20,000 crore and a corpus of Rs 3,000 crore, respectively. A credit guarantee fund was also set up for Stand-Up India, for scheduled caste/tribe and women entrepreneurs.
“Every branch of every bank will at least two persons, one SC/ST and a woman entrepreneur. Total amount to be sanctioned to them for setting up a new business will be Rs 10 lakh to one crore,” said Jaitley.
Duggal said the Stand-Up India credit guarantee fund will have a corpus of Rs 5,000 crore. “The amount guaranteed will be 75 per cent of loans. This will be on an individual basis,” she said.
