Deficiencies and Lapses found in implementation of PMMY/MUDRA

1. Selection of the Borrowers

(a) A large number of applicants engaged in same/similar activities have been selected
(b) Majority of the applicants concentrated in one pocket/street/shopping complex
(c) Bulk of the applications has been filled in by the same person, going by the style of handwriting and language found on such applications.
(d) At many places, borrowers have been brought to the bank by intermediaries.
(e) Bank staff themselves have visited all shops and small business establishments in the vicinity and offered loans to them to beat the deadline. Since the lenders themselves came forward to offer loan, without the borrowers asking for it, bankers have made themselves cheap and also vulnerable
(f) Applicant does not possess the professional skills required for carrying out the proposed activity (e.g. Tailoring, Beauty Parlour, Software Solutions, Transport Operator etc.)
(g) Applicant does not have valid licence/statutory approval to carry on the proposed activity (e.g. Medical Shop, full fledged Hotel/Restaurant, Departmental Stores etc.)
(h) Same borrower has been assisted twice for the same activity and purpose under MUDRA
(i) More than one member from the same family assisted under PMMY/MUDRA
(j) Two different units engaged in the same activity and located at the same address considered for assistance, resulting in double finance
(k) Existing borrowers having limits under Term Loan, SOD or OCC have been sanctioned MUDRA loans, despite the fact that they have mortgaged their immovable property for their first loan
(l) Even small units located at distant/far away places selected for assistance, without thinking about the difficulties to be faced in regard to monitoring and follow up

2. Application

(a) Line of Activity and Purpose of Loan not filled in by the Applicant
(b) Facility sought has not been stated in the application
(c) Loan amount applied for has not been expressly mentioned in the application
(d) Quotation / Proforma Invoice not attached to the application
(e) Many quotations were from the same vendor or a few vendors, regardless of the activity of the applicants
(f) Affidavit from the applicants stating they have no loans from other banks/financial institutions and they are/were never defaulters to any banks/financial institutions has not been obtained

3. Pre-Sanction

(a) Unit Inspection not conducted for existing units
(b) Credit Investigation /Due Diligence was not done, at least for loans beyond Rs.50,000
(c) CIBIL Report (Individual and Commercial) not generated for limits of Rs.2 lakhs and above

4. Appraisal

(a) Rating in case of limits of Rs.2 Lakhs and above not done
(b) Process Note has been left blank/incomplete or it is not on record
(c) Economic viability of the activity/unit has not been discussed even briefly in the process note
(d) Appraisal Note has not been signed by bank officials
It may be due to either of these reasons:
1. Process note was also filled in by an outsider and brought to the bank along with the loan application
2. Fear in the minds of the bank officials who processed and sanctioned the loan about accountability in case of probable default

5. Sanction

(a) Sanction letter is not available on record
(b) Sanction letter is very vague and it does not even contain basic and essential terms and conditions
(c) Bank has sanctioned loan for some purpose/activity that is entirely different from the one stated in the application
(d) Borrower has not acknowledged and accepted the sanction terms and conditions
(e) Limit sanctioned does not have any relevance to the activity of the borrower. For instance, street hawkers selling vegetables, fruits, flowers, milk (having no permanent place), roadside idli shops etc. have been sanctioned loans that are disproportionate to their actual need. The loan amount in such cases is many times higher than their monthly sales turnover.
(f) Already existing units have been granted loans against their old machinery and equipment. Loan amount in such cases has been credited to the borrower’s personal account.
(g) Many parties have been allowed to ‘top up’ their existing limit under the same scheme within a short span of time, without proper rationale and justification. This is done with a view to show a larger number of sanctions than what is done in reality. This step is resorted to, probably as a part of ever-greening exercise, to prevent the loans from slipping down to NP

6. Documentation

(a) All the required documents have not been obtained
(b) Documents have been left blank/incomplete
(c) Stamping was not done/Stamps affixed have not been defaced with signature and date of the manager or a competent person/authority

7. Disbursement

(a) Borrower’s margin was not ensured
(b) There is no documentary proof for the advance purportedly paid by the applicant to the vendor
(c) Full/major part amount of the loan has been credited to the borrower’s CD/SB account
(d) Proper bills have not been obtained
(e) Where the bills are available, many such bills are scribbled on a piece of paper or handwritten on cash memos that do not bear any Serial Number, Date and Address of the vendor
(f) Bills are dated prior to the date of sanction of the loan (bills are several months or even a year old)

8. Post Sanction

(a) Unit inspection was never conducted after the loan was disbursed
(b) Insurance of the assets created out of bank funds has not been done
(c) CGTMSE coverage has not been done.
(d) For a branch of the age and size of a particular bank branch, disproportionately large number of loans has been sanctioned under PMMY/MUDRA, making the follow up difficult and unmanageable

9. Others

(a) Many bank staff do not understand the basic lending principles. They do not attach much importance to the standard procedure to be followed for prudent lending.
(b) Due to pressure from the higher officials, many banks have received, processed and sanctioned a large number of proposals on a single day. Disbursement of the loan was also done the same day or the following day. This has lead to a lot of deficiencies, lapses and irregularities.
(c) Loans have been sanctioned to individuals like housewives, drivers, watchmen, ATM security guards, Tea boys, temporary staff and others. In such instances, there was no tangible asset created and the loans are 100% clean and unsecured.

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