Union Cabinet approves 2% Interest Subvention on Shishu Loans

Union Cabinet chaired by Prime Minister Shri Narendra Modi has approved the scheme for interest subvention of 2% to all Shishu loan accounts given under Pradhan Mantri Mudra Yojana (PMMY) to eligible borrowers. The scheme would be operated by Small Industries Development Bank of India (SIDBI) for a period of 12 months.

What is Pradhan Mantri MUDRA Yojana (PMMY)?

MUDRA has created products/schemes under the aegis of Pradhan Mantri Mudra Yojana (PMMY). The interventions under the scheme have been named as ‘Shishu’, ‘Kishore’ and ‘Tarun’. The three names signifies the stage of growth/development and funding requirements of the beneficiary micro unit / entrepreneur. These names also provides a reference point for the coming phase of graduation / growth to look forward to:

  • covering loans upto Rs 50,000/- are called Shishu Loans\
  • covering loans above Rs 50,000/- and upto 5 lakh are called Kishor Loans
  • covering loans above Rs 5 lakh and upto 10 lakh are called Tarun Loans

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The above loans are sanctioned under the Pradhan Mantri Mudra Yojana with prime objective of development as well as growth of micro enterprises sector. These loans are mainly extended for Equipment Finance for Micro Units; Transport Vehicle loans for commercial use only; Loans for agri-allied non-farm income generating activities etc.

What is Shishu Loan?

Under Pradhan Mantri Mudra Yojana (PMMY), the loans extended for income generating activities up to Rs 50,000 are known as Shishu loans. The Member Lending Institutions such as Scheduled Commercial Banks, Non Banking Finance Companies and Micro Financial Institutions, registered with Mudra Ltd are responsible for extending the above loans. With an objective to promote entrepreneurship among the new generation aspiring youth, it is ensured that more focus is given to Shishu Category Units and then Kishore and Tarun categories.

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About the Interest Subvention Scheme:

The Scheme for Interest Subvention of 2% would be applicable on all Shishu loan accounts given under Pradhan Mantri Mudra Yojana (PMMY) to the eligible borrowers. The interest subvention would be applicable for a period of 12 months. The scheme would be applicable to loans which are outstanding as on 31st March, 2020; and not in Non-Performing Asset (NPA) category, in line with the Reserve Bank of India (RBI) guidelines, on 31st March 2020 and during the period of operation of the Scheme.

According to the scheme, people who will make regular repayments of loans would be eligible to avail the benefits of the interest subvention which would be payable for the months in which the accounts are not in NPA category, and the months in which the account becomes a performing asset again, after turning NPA. The estimated cost of the interest subvention scheme would be approximately Rs 1,542 crore which would be borne by the Government of India.

Implementation of the scheme:

The Interest Subvention Scheme will be implemented through the Small Industries Development Bank of India (SIDBI). The scheme would be in operation for a period of 12 months. For borrowers, who have been allowed a moratorium by their respective lenders, as permitted by RBI under the ‘COVID 19 Regulatory Package’, the Scheme would begin after the completion of the moratorium period till a period of 12 months i.e. from September 01, 2020 till August 31, 2021. While, for other borrowers, it would begin with effect from June 01, 2020 till May 31, 2021.

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