In News:

• The Reserve Bank of India (RBI) has raised a red flag over spike in non-performing assets (NPAs) under the government’s flagship scheme to support micro enterprises in the country the Pradhan Mantri Mudra Yojana.

Explained:

• The RBI has cautioned that the scheme might turn out to be the next big source of NPAs that have plagued the banking system. RBI said that bad loans under PMMY had risen to Rs. 11,000 crores. The caution comes at a time when the country’s financial system is reeling under severe stress due to IL&FS crisis.

What is PMMY?

• Pradhan Mantri MUDRA Yojana (PMMY) is a scheme launched by the government on April 8, 2015 for providing 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, Cooperative Banks, MFIs and NBFCs. The borrower can approach any of the lending institutions mentioned above or can apply online through this portal.
• 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.

What Is Non-Performing ASSET?

• A non-performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days. Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.
  • Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.
  • Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
  • Loss assets: As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value

Importance of MSME:

• IT has been accounting more than 80 percent of the industrial enterprises in India
• It produces 45% of manufacturing output and 40% of total exports
• The significance of MSMEs is attributable to their calibre for employment generation, low capital and technology requirement. According to the estimates of the Ministry of MSME, Government of India, the sector generated around 100 million jobs through over 46 million units situated throughout the geographical expanse of the country.
• As per the Report of the working Group on Micro, small and medium Enterprises (MSMEs) Growth for 12th Five Year Plan (2012-2017), the sector accounts for 45% of the manufacturing output and 40 % of total exports of the country.
• The labour to capital ratio in MSMEs and the overall growth in the sector is much higher than that in the large industries. The Geographic distribution of the MSMEs is also more even. Thus, MSMEs are important for meeting the national objectives of growth with equity and inclusion.

They are also important for promotion of industrial development in rural areas, use of traditional or inherited skill, use of local resources, mobilization of resources and exportability of products.