Cabinet approves to 2 pc interest subvention on repayment of Shishu loans under Mudra scheme

New Delhi [India], June 24 : The Union Cabinet on Wednesday approved a scheme for interest subvention of two per cent for 12 months to all eligible Shishu loan accounts under Pradhan Mantri Mudra Yojana (PMMY).
The scheme will be extended to loans which are outstanding as on March 31 and not in Non-Performing Asset (NPA) category on the last date of previous fiscal and during the period of operation of the scheme.
The interest subvention would be payable for the months in which the accounts are not in NPA category including for the months that the account becomes a performing asset again, after turning NPA.
An official release said the scheme will incentivize people who will make regular repayments of loans.
The estimated cost of the scheme is Rs 1,542 crore and the money will be provided by the central government.
This scheme relates to a measure relating to MSMEs announced under the Atmanirbhar Bharat Abhiyan. Under PMMY, loans for income-generating activities up to Rs. 50,000 are termed as Shishu loans.
PMMY loans are extended by scheduled commercial banks, Non-Banking Finance Companies and Micro Financial Institutions registered with Mudra Ltd.
The release said that COVID-19 crisis and the consequent lockdown has led to severe disruption of business for micro and small enterprises which are funded through Shishu Mudra loans.
Small businesses typically function on thin operating margins and the coronavirus crisis has had a severe impact on their cash flows, jeopardizing their ability to service their loans.
"This could lead to default in repayment and have a resultant impact on access to institutional credit in future," the release.
As on March 31, 2020, about 9.37 crore loan accounts under the Shishu category of PMMY with a total loan amount of about Rs 1.62 Lakh crore were outstanding.
The scheme will be implemented through the Small Industries Development Bank of India (SIDBI) and will be in operation for 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 commence post completion of the moratorium period till a period of 12 months - from September 1, 2020, till August 31, 2021.
For other borrowers, the scheme would commence from June 1, 2020, till May 31, 2021.
The release said that the scheme has been formulated as a specific response to an unprecedented situation and aims to alleviate financial stress for borrowers at the "bottom of the pyramid" by reducing their cost of credit.