The union cabinet on Wednesday(6th January 2016) approved the setting up of a credit guarantee fund for loans of Micro Units Development & Refinance Agency Ltd or MUDRA Bank.
The fund is expected to guarantee more than Rs.100,000 crore worth of loans to micro and small units in the first instance, the government said.
The cabinet meeting chaired by Prime Minister Narendra Modi also gave its nod to covert MUDRA Ltd to MUDRA Small Industries Development Bank of India (MUDRA SIDBI Bank) - a wholly owned subsidiary of Small Industries Development Bank of India (SIDBI).
Finance Minister Arun Jaitley in his budget speech for 2015-16 had said MUDRA Bank and a credit guarantee fund was proposed to be set up with a refinance corpus of Rs.20,000 crore and Rs.3,000 crore respectively.
Prior to the launch of the Pradhan Mantri MUDRA Yojana (PMMY) in April, 2015, MUDRA Ltd. was set up as a subsidiary of SIDBI in March, 2015.
The Reserve Bank of India (RBI) has allocated Rs 20,000 crore and the first tranche of Rs.5,000 crore has been received by MUDRA as refinance.
The credit guarantee fund is set up to guarantee loans given under Pradhan Mantri Mudra Yojana.
This is done to reduce the credit risk to banks, non-banking finance companies and others who are member lending institutions.
The guarantee would be provided on portfolio basis to a maximum extent of 50 percent of amount in default in the portfolio.
The National Credit Guarantee Trustee Company Ltd., a Government of India company that manages and operates various credit guarantee funds will be the fund Trustee.
According to the statement the MUDRA (SIDBI) Bank will undertake refinance operations and provide support services with focus on portal management; data analysis and other activities as specified by the government.