Cabinet approves 2% interest subsidy on rapid repayment of Shishu loans for 12 months

The Union Cabinet chaired by Prime Minister Narendra Modi today approved a 2% interest subsidy program for a period of 12 months, on all Shishu loan accounts under Pradhan Mantri Mudra Yojana (PMMY) to eligible borrowers. The program will be extended to loans that meet the following criteria – outstanding as of March 31, 2020; and not in the Non-Performing Assets (NPA) category, as per Reserve Bank of India (RBI) guidelines, on March 31, 2020 and during the running period of the program.

The interest subsidy would be payable for months in which the accounts are not in the NPA category, including for months in which the account reverts to a productive asset, after reaching the NPA. The program will encourage people to repay their loans regularly. The estimated cost of the program would be around Rs. 1,542 crore which would be provided by the Indian government.

This program concerns the implementation of one of the MSME related measures announced under the Atma Nirbhar Bharat Abhiyan. Under PMMY, loans for income-generating activities up to Rs. 50,000 are referred to as Shishu loans. PMMY loans are granted by member credit institutions, viz. Regular commercial banks, non-bank finance companies and micro financial institutions, registered with Mudra Ltd.

The current COVID-19 crisis and the resulting lockdown have caused serious disruption to the operations of micro and small businesses that are funded by Shishu Mudra loans. Small businesses typically operate with low operating margins, and the current foreclosure has severely impacted their cash flow, compromising their ability to repay loans. This could lead to a default and have an impact on access to institutional credit in the future. As of March 31, 2020, approximately 9.37 crore loan accounts under the Shishu category of PMMY with a total loan amount of approximately Rs 1.62 Lakh crore, were outstanding.

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(This story was not edited by Business Standard staff and is auto-generated from a syndicated feed.)

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