Pradhan Mantri MUDRA Yojana: Bank-wise Interest Rates and How to Choose a Lender

Pradhan Mantri MUDRA Yojana (PMMY) does not set a single interest rate. This is the fact that surprises most first-time borrowers: each Member Lending Institution (MLI) prices a MUDRA loan under RBI guidelines using its own benchmark lending rate and your risk profile. As the Department of Financial Services states, rates therefore vary between a public sector bank, a private bank, an NBFC and a microfinance institution. This article explains how different lender types treat the scheme, the interest ranges you can expect, and how to choose.

For the loan categories, eligibility and documents, read the Pradhan Mantri MUDRA Yojana guide. In short, PMMY offers collateral-free loans up to Rs 20 lakh across Shishu, Kishore, Tarun and Tarun Plus.

How different lenders price MUDRA loans

MUDRA loans at most public sector banks are linked to the bank's External Benchmark Lending Rate (EBLR) or MCLR, plus a spread set by your credit profile. For example, State Bank of India links its MUDRA loans above Rs 50,001 to EBLR plus a spread; SBI's published material has indicated an effective rate in the region of 12% for such loans, subject to periodic revision. Treat any single quoted figure as indicative only. The rate applicable to you is the one the branch confirms in writing.

Indicative ranges reported by lending aggregators (not official PMMY figures) place category rates broadly at:

Category	Loan size	Indicative rate range*
Shishu	Up to Rs 50,000	~9.5%–12.5% p.a.
Kishore	Rs 50,001–Rs 5 lakh	~9%–12% p.a.
Tarun / Tarun Plus	Rs 5 lakh–Rs 20 lakh	~8.5%–11.5% p.a.

*These ranges are aggregator estimates for orientation only. PMMY fixes no rate; always confirm the annualised rate directly with the lender.

Lender types: what to expect

• Public sector banks (SBI, PNB, Bank of Baroda, Canara, etc.): typically the lowest rates, often no processing fee on the smallest loans, but stricter documentation and slower appraisal.
• Private banks (HDFC, ICICI, Axis, etc.): faster processing, competitive rates for strong profiles, but may levy processing fees.
• Small finance banks and RRBs: good reach in semi-urban and rural areas; rates sit between PSBs and NBFCs.
• NBFCs and NBFC-MFIs: widest reach to first-time and thin-file borrowers, quickest turnaround, but generally higher rates reflecting higher-risk lending.

How to choose a lender

1. Start where you already bank. An existing 6-month account relationship strengthens your file and can speed appraisal.
2. Compare the annualised rate, not the EMI. A lower EMI over a longer tenure can cost more overall.
3. Ask for all charges in writing, processing fee, documentation charges, prepayment terms and the full repayment schedule.
4. Match the lender to your size. For a small Shishu loan, a PSB or nearby RRB usually wins on cost; for a fast Tarun proposal with a solid project report, a private bank may be quicker.
5. Use the online routes to reach multiple lenders. Applying on udyamimitra.in or jansamarth.in routes your proposal to MLIs in your district, letting you compare offers.

Questions to ask any lender

• What is the annualised interest rate and is it fixed or floating (linked to EBLR/MCLR)?
• Is there a processing fee, and is it waived for this category?
• Is any collateral or third-party guarantee being asked for? (For MUDRA it should not be, up to Rs 20 lakh.)
• What is the tenure, moratorium and prepayment penalty?
• Can I get a MUDRA card (RuPay) for the working-capital portion, with interest only on the amount drawn?

A red flag to remember

PMMY loans are collateral-free up to Rs 20 lakh. A lender that insists on property security or a third-party guarantee for a MUDRA loan is acting outside the scheme's terms, and that can be escalated to the bank's grievance cell or the RBI Ombudsman. No agent can guarantee sanction, and no fee should be paid to any intermediary — the decision rests with the lender's credit appraisal.

FAQ

Which bank gives the cheapest MUDRA loan? There is no fixed answer: public sector banks are usually cheapest, but your actual rate depends on your credit profile and the bank's current benchmark rate.

Can I switch lenders after sanction? You can prepay and refinance elsewhere, subject to any prepayment terms; compare the switching cost against the rate saving.

Where do I compare official rates? mudra.org.in lists member lending institutions and state-wise helplines; confirm the exact rate with the branch, as aggregator figures are only indicative.