Transfin.

Could the Mudra Scheme Become the Source of the Next Bad Loan Crisis?

Could the Pradhan Mantri Mudra Yojana (PMMY), popularly known as the Mudra scheme become the source of the next bad loan crisis?

 

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With close to 3% of INR6.04L cr worth of loans sanctioned under the scheme having turned bad at the end of March 2019, could Mudra become the source for the next bad loan crisis?

Loans Turning Bad: Former RBI Governor Raghuram Rajan had flagged the potential credit risks in schemes such as Pradhan Mantri Mudra Yojana (PMMY), popularly known as the Mudra scheme. Previous RBI Governor Urjit Patel too had warned the government against nudging public sector banks (PSBs) to over lend and pump-prime the economy and boost preferred sectors, stating that doing so would lead to higher bad loans and fiscal deficit. But all warnings seem to have fallen on deaf ears.

 

The NPAs on Mudra loans by PSBs, which also included regional rural banks, jumped to INR17,250cr as on March 2019 vs INR7,277cr last year, INR3,790cr in 2017 and INR596cr in 2016.

 

In a written reply to a question in the Rajya Sabha, the government had submitted that close to 3% of INR6.04L cr worth of loans sanctioned under the Pradhan Mantri Mudra Yojana have turned bad at the end of March 2019. With the number of loans turning bad increasing under the scheme, could Mudra become the source for the next bad loan crisis? Click here for the entire scoop.

 

As God As My Witness: The Industrial & Commercial Bank of China is looking to recover over $680mn from Anil Ambani, invoking what they say is a personal guarantee he gave in 2012 to secure a $925mn loan for now debt-ridden Reliance Communications. A trial will commence next year. 

 

In his version, Anil Ambani had only authorized his employees to furnish a non-binding “personal comfort letter” to lenders, including ICBC, China Development Bank and the Export-Import Bank of China. Somehow, that letter of comfort morphed into what the banks now argue to be an iron-clad guarantee under English law. In this regard, London Judge David Waksman noted, "I consider it extremely unlikely that his role was really limited to simply chairing board meetings with little or no interest or role in what RCom was doing, especially in the context of a major refinancing which was needed urgently." Deccan Herald

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