Govt approves 2% interest subvention scheme for small Mudra borrowers

Benefit will be applicable for 12 months to all loan accounts under 'Sishu' category of Mudra scheme, provided they have not been classified as NPA as of March 31, 2020

The Union government on Wednesday approved a scheme to provide 2 per cent relief on interest to small bank borrowers under the Pradhan Mantri MUDRA Yojana (PMMY).

The interest subvention benefit will be applicable for a period of 12 months to all loan accounts under the Shishu category of the MUDRA scheme. However, such loan accounts should not have been classified as non-performing assets (NPAs) as of March 31 to qualify for the benefit. The scheme, which will cost the government Rs 1,542 crore, was approved by the Union Cabinet on Wednesday. It will benefit 30 million borrowers.

“The interest subvention will be payable for the months in which the accounts are not in the NPA category, including for the months the account becomes a performing asset again, after turning NPA. The scheme will incentivise people who will make regular repayments of loans,” an official statement issued by the Union finance ministry said.

Under the MUDRA scheme, accounts fall under three categories depending upon the amount of loan: Shishu (up to Rs 50,000), Kishore (Rs 50,001 to Rs 5 lakh), and Tarun (from Rs 5-10 lakh).

There are 93.7 million loan accounts under the Shishu category of PMMY, with loan worth Rs 1.62 trillion, as of March 31. Shishu loan holders account for half the total number of loans disbursed under PMMY.

“The ongoing Covid-19 crises and the consequent lockdown have led to severe disruption of business for micro and small enterprises funded through Shishu MUDRA loans. Small businesses typically function on thin operating margins, and the current lockdown has had a severe impact on their cash flows, jeopardising their ability to service their loans,” the ministry said.

The interest subvention scheme, which will commence from June 1 till May 31, 2021, will be implemented through the Small Industries Development Bank of India, the finance ministry said. Even those borrowers who have availed of benefit of moratorium on payment of interest of loans given by the Reserve Bank of India (RBI) during the pandemic will be a part of the interest subvention scheme.

“For borrowers who have been allowed moratorium by their respective lenders, as permitted by the RBI under the Covid-19 Regulatory Package, the scheme will commence after completion of the moratorium period — from September 1 till August 31, 2021.

The government said the scheme is expected to provide much-needed relief to the sector, thereby enabling small businesses to continue functioning without laying off employees due to lack of funds. Of all the MUDRA loan borrowers, Shishu loan holders accounted for 65 per cent of the net addition of 11.2 million jobs during 2015-17, according to a survey conducted by the labour bureau under the Ministry of Labour and Employment.