Cabinet clears conversion of MUDRA into bank; Stand-Up plan for SC, ST entrepreneurs

By PTI
06 January, 2016

The Cabinet today approved conversion of MUDRA Ltd, an NBFC, into MUDRA Bank and also setting up of a Credit Guarantee Fund for loans disbursed under the Pradhan Mantri Micro Units Development Refinance Agency (MUDRA) Yojana.

Prime Minister Narendra Modi cleared creation of a Credit Guarantee Fund for MUDRA loans and to convert MUDRA Ltd into MUDRA Small Industries Development Bank of India (SIDBI) Bank as a wholly owned subsidiary of SIDBI, an official statement said.

“The MUDRA (SIDBI) Bank will undertake refinance operations and provide support services with focus on portal management; data analysis etc apart from any other activity entrusted or advised by Government of India,” it said.

The Credit Guarantee Fund is expected to guarantee more than Rs 1 lakh crore worth of loans to micro and small units in the first instance, it said, adding it will help in reducing risk taken by banks and financial institutions in case of default under the scheme.

A Credit Guarantee Fund for MUDRA Units (CGFMU) for guaranteeing loans — sanctioned under the scheme with effect from April 8, 2015 — will be set up.

The National Credit Guarantee Trustee Company Ltd (NCGTC Ltd), a wholly-owned company of Government of India, constituted under the Companies Act to manage and operate various credit guarantee funds, shall be the Trustee of the Fund, it said.

The guarantee would be provided based on a portfolio basis to a maximum extent of 50 per cent of amount in default in the portfolio.

Three products available under the PM 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. Tarun category provides loans of above Rs 5 lakh and up to Rs 10 lakh.

MUDRA Bank and a Credit Guarantee Fund was proposed to be set up with a refinance corpus of Rs 20,000 crore and a corpus of Rs 3,000 crore respectively in the Budget 2015-16.

As a precursor to the launch of the Pradhan Mantri MUDRA Yojana (PMMY) in April 2015, MUDRA Ltd was set up as a corporate subsidiary of SIDBI in March 2015.

The RBI has allocated Rs 20,000 crore and the first tranche of Rs 5,000 crore has been received by MUDRA as refinance.

The Union Cabinet today approved the Stand Up India Scheme to promote at least 2.5 lakh scheduled caste, scheduled tribes, and women entrepreneurs through banks.

The Stand Up India Scheme will be a refinance window through Small Industries Development Bank of India (SIDBI) with an initial amount of Rs 10,000 crore.

“The Scheme is intended to facilitate at least two such projects per bank branch, on an average one for each category of entrepreneur. It is expected to benefit at least 2.5 lakh borrowers,” an official statement said after the Cabinet meeting, chaired by Prime Minister Narendra Modi.

The expected date of reaching the target of at least 2.5 lakh approvals is 36 months from the launch of the Scheme, said the statement.

It entails creation of a credit guarantee mechanism through the National Credit Guarantee Trustee Company (NCGTC).

Besides, the Scheme will be a handholding support for borrowers both at the pre loan stage and during operations.

“This would include increasing their familiarity with factoring services, registration with online platforms and e-market places as well as sessions on best practices and problem solving”, the statement said.

Government said the overall intent of the approval is to leverage the institutional credit structure to reach out to these under-served sectors of the population by facilitating bank loans repayable up to 7 years and between Rs 10 lakh to Rs 1 crore for greenfield enterprises in the non farm sector set up by such SC, ST and women borrowers.

The loan under the scheme would be appropriately secured and backed by a credit guarantee through a credit guarantee scheme.

The Department of Financial Services would be the settler and National Credit Guarantee Trustee Company Ltd (NCGTC) would be the operating agency.

Under the Scheme, the margin money of the composite loan would be up to 25 per cent.

“The convergence with state schemes is expected to reduce the actual requirement of margin money for a number of borrowers,” it said.

Over a period of time, credit history of the borrower be built up through Credit Bureaus.

The ‘Start up India Stand up India’ initiative was announced by the Prime Minister in his address to the nation on August 15, 2015.

The Stand up India component is anchored by Department of Financial Services to encourage greenfield enterprises by SC/ST and women entrepreneurs.


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Cabinet clears conversion of MUDRA into bank; Stand-Up plan for SC, ST entrepreneurs

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