MUDRA Bank : Step towards Growth

“The Micro Units Development Refinance Agency, or MUDRA Bank, will have a corpus of Rs20,000 crore and a credit guarantee corpus of Rs3,000 crore”, Finance Minster Arun Jaitley in Parliament said while presenting the Union Budget for the financial year 2015-16. The Narendra Modi-led Bharatiya Janata Party government proposed to create a refinance agency to provide much-needed credit facilities to micro, small and medium enterprises. (Economic Times, February 28, 2015) What is it and why it is important for economic development? Refinancing Refinancing may refer to the replacement of an existing debt obligation with another debt obligation under different terms. The growth and development takes place in any economy when all the resources, including Human Resources, will develop. It is most important and still difficult in Indian context as most of the peoples are not developed, we called it BPL (Below Poverty Line) in economic language. It is a very easy for any commercial nationalised bank to give lone to big corporates. They have knowledge, mortgage and know how to negotiate. But giving lone to this corporations doesn’t make any sence in context of economic development. MSMEs are not that much centralised like Corporate conglomerates. Neither they have property for mortgage. Hardly there is credit history. But still whatever they are doing is very important. It is impossible for conglomerates to make new jobs remotely located areas and invest for there growth. So it is hardly possible to grow.

Most of India is not urbanised till date. MSMEs are that force which tapped in this infinite potential of growth. But due to some reason, even Public sector banks are also not interested to give loan to this sector. Reasons are many. Less branches, low manpower, Less Availability of Road transport and so on. Picture is changing now. After RBI and Govt decision, some banks are ready to give loan. But sometime its difficult to repay the loan. Due to all this, this type of loans need Refinancing. It is more risky to make refinance, but if successful, it have a potential to make growth. Banks and financial Institutions don’t find it difficult for restructuring of loan For any big business group. But with this small business, the situation is different. How to restructure it. Its difficult. So naturally its governments duty to do so. Want to finish this with the information. Recently RBI gives Full banking license. That time the minimum capital requirement, what RBI give, was 5000 Cr. Govt is going to start MUDRA bank with 20000 Cr

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About Ashutosh Tilak

Tracking Indian Capital Market since 2010. Finance Student, On this blog I am writing about finance and Investing. You can contact me or @androidashu & @InsideFinanc on twitter