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INDIAN EXPRESS EDITORIALS AND EXPLAINED 29th NOVEMBER

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RISING NUMBER OF BAD LOANS UNDER PM MUDRA YOJANA

WHY IN NEWS?
Report in the Indian Express showed that large number of loans provided under the MUDRA Yojana have turned in the non performing assets/bad loans.

LOANS UNDER MUDRA
Loans under Mudra fall under three categories:
Shishu, which covers loans up to Rs 50,000;
Kishore, for loans between Rs 50,000 and Rs 5 lakh; and
Tarun, for loans between Rs 5 lakh and 10 lakh.

AMOUNT OF BAD LOANS
The number of bad loans in the Kishore category has more than doubled, rising by 107 per cent at the end of September 2019, over March.
In value terms, bad loans have surged by 71 per cent in this category. In the Tarun category, too, bad loans have risen to Rs 3,425 crore in September, up 45 per cent from Rs 2,353 crore in March.
The Shishu category has also seen a spurt in the number of bad loans, though of a lower magnitude.

WHY SO MANY BAD LOANS?
Poor credit appraisals
Lack of monitoring by banks,
Wilful defaults, and
The growing inability to pay back obligations due to a slowing economy

About the Pradhan Mantri MUDRA Yojana (PMMY) scheme:
The PMMY Scheme was launched in April, 2015. The scheme’s objective is to refinance collateral-free loans given by the lenders to small borrowers.
• The scheme, which has a corpus of Rs 20,000 crore, can lend between Rs 50,000 and Rs 10 lakh to small entrepreneurs.
• Banks and MFIs can draw refinance under the MUDRA Scheme after becoming member-lending institutions of MUDRA.
• Mudra Loans are available for non-agricultural activities upto Rs. 10 lakh and activities allied to agriculture such as Dairy, Poultry, Bee Keeping etc, are also covered.
• Mudra’s unique features include a Mudra Card which permits access to Working Capital through ATMs and Card Machines.

 

ISSUE: INSOLVENCY AND BANKRUPTCY CODE

HISTORY OF LEGISLATION ON INSOLVENCY AND BANKRUPTCY CODE
insolvency and bankruptcy are covered in the Seventh Schedule under the Concurrent List in the Constitution
Legislations till Date for Dealing with Insolvency
Till the year 1985, the Companies Act, 1956.
1985: SICK INDUSTRIAL COMPANIES ACT, 1985 (SICA),
1993: RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 (RDDBFI) under which debt recovery tribunals (DRTs) were established and finally,
2002:SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITIES INTEREST ACT (SARFAESI) was enacted in 2002 to deal with Insolvency and Bankruptcy.
2016: Insolvency and Bankruptcy Code was enacted in 2016.

COMPARISON OF IBC AND OTHER LAWS
The success rate of companies under several regulations pre-2016 was abysmally low and varied from 16 per cent to a maximum of 25 per cent. In contrast, the success rate of companies under the IBC in terms of a closure is already at 41 per cent and increasing.

WHAT MORE COULD BE DONE?
Government should increase the threshold value substantially from Rs 1 lakh and increasing the number of NCLT benches with a preponderance of more erudite professionals who understand the financial system better. This will ensure that the IBC platform is not used as a recovery but more as a resolution tool.
Regulations must be made allowing foreign portfolio investors (FPIs) to acquire stressed rupee loans directly instead of going through an asset reconstruction company (ARC) and allowing eligible external commercial borrowing investors to fund the acquisition of stressed companies both under the IBC and outside it. This step will avoid unnecessary liquidation of the company.
Efforts should be made to find a resolution of construction, electricity companies outside the NCLT as these could save resources and time for hard-pressed NCLT benches.

EXPLAINED
FASTAGS

WHY IN NEWS?
From December 1, lanes on national highway toll plazas across India will accept toll only through FASTag — fitted in a vehicle that pays toll automatically when the vehicle crosses the boom barrier of the toll plaza.

HOW DOES FASTag WORK?
The device employs Radio Frequency Identification (RFID) technology for payments directly from the prepaid or savings account linked to it. It is affixed on the windscreen, so the vehicle can drive through plazas without stopping. RFID technology is similar to that used in transport access-control systems, like Metro smart card.

If the tag is linked to a prepaid account like a wallet, or a debit/credit card, then owners need to recharge/top up the tag. If it is linked to a savings account, rthen money will get deducted automatically after the balance goes below a pre-defined threshold. Once a vehicle crosses the toll, the owner will get an SMS alert on the deduction. In that it is like a prepaid e-wallet.

A FASTag is valid for five years, and can be recharged as and when required.

Will those living close to toll roads not end up paying more frequently?
As per a government notification, users living within 10 km of a toll plaza can avail a concession on toll to be paid via FASTag. They need to submit proof of residence and nearest point-of-sale location to validate. Once the address is verified, the concession is ensured via FASTag affixed on the vehicle.

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