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Tue, Feb 02 2016. 01 08 AM IST

Kshatrapati Shivaji, chairman and managing director of Sidbi.

Photo: Ramesh Pathania/Mint

Kshatrapati Shivaji says the benefits of lending to small units under the Mudra scheme will outweigh risks faced by banks

New Delhi: The benefits of lending to small units under the Mudra

scheme will outweigh risks faced by banks, said Kshatrapati Shivaji,

chairman and managing director of the Small Industries Development

Bank of India (Sidbi), in an interview.

Set up as a subsidiary of Sidbi, Mudra, or Micro Units Development

and Refinance Agency, has disbursed more than `84,000 crore loans

under the Pradhan Mantri Mudra Yojana by partner financial

institutions. Shivaji spoke about the learnings so far and the way

forward for the flagship scheme. Edited excerpts:

How has the Mudra scheme done since its launch in April last

year?

It is a fantastic scheme aimed at bringing excluded people into the

mainstream. The objective is to provide them all the required support

so that their capacity can be unlocked and they can start participating

in the growth of the nation. They were not getting any support from

banks, because of which their potential was underutilized. The scheme

has a direct impact on employment generation as well. It fills a gap in the ecosystem.

Are you satisfied with its progress?

t is very satisfactory. Even a new product like the Mudra card has been very effective on the ground. It is a variant of the debit card. There is a

mit which is pre-sanctioned by banks and sometimes in collaboration with an MFI (microfinance institution). People can use this card and

bring down their interest burden as they do not need to go to moneylenders and borrow. This solves the problem of a bank branch being a bit

oo far. With the help of this card, they can withdraw money only when they need it from ATMs and do not need to withdraw more than their 

equirement. Mudra loans of over `84,000 crore have been disbursed, which is very good. The focus is on the lowest category, or ‘shishu’

oans, wherein loans up to `50,000 are given. The number of borrowers there is highest but administrative costs are also high.

The cabinet recently gave its nod to a credit guarantee scheme to support Mudra loans. Are banks worried that this portfolio will turn

bad for them?

n the lending business, every credit exposure has some inherent amount of risk. Lending is a function of the credit profile, rating, transaction

history and the quality aspects of the borrowing entities. In this case, the entities have no transaction history because most of the transactions

are in cash. Every such lending business has to deal with the credit risk and the administrative cost of operations. Credit risk comes into the

picture because this section has very little transaction history. This risk is mitigated by credit guarantee and not because banks are very

worried about this portfolio.

But banks have been reluctant to lend to this segment and only lend because they have to meet their priority sector lending

equirements...

This is only one side of the coin. Naturally, there is the fear of the unknown. This kind of segment naturally has some risk attached to it. Cost of 

operations is also very high compared to wholesale banking, where administrative costs are low. But this segment has a very high growth

potential. The potential has not been used. Banks will also get first-mover advantage. Once a borrower uses the services of a bank, it is likely

hat the borrower will stick to the bank. Telcos were also reluctant to go to rural areas. But then they realized that the customers there are more

oyal and unlikely to switch operators.

What happens to the credit guarantee fund trust for micro and small enterprises (CGTMSE) that already exists?

14-06-16 15:28

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That will also remain. This guarantee fund for Mudra loans is dedicated to a particular segment. This differentiation will have a play. CGTMSE

was for loans up to `1 crore. This is for loans up to `10 lakh. So this fund is more focused. The nature of the activity is also different. In

CGTMSE, most of the loans are on the manufacturing side. Under Mudra, borrowers are mainly on the tertiary or service sector side.

Are you looking at any more changes to the Mudra scheme, given the learnings so far?

We could look at fine-tuning the architecture. We have been trying to improve the effectiveness of the product every day, like the introduction of 

he Mudra card. We will make changes depending on the feedback.

Kshatrapati Shivaji, 54Shivaji was appointed chairman and managing director of Sidbi in January 2015, for a period

of three years. A 1986 batch Indian Administrative Service officer belonging to the

Maharashtra cadre, Shivaji has served in various capacities at both the centre and the state.

14-06-16 15:28