The Reserve Bank of India (RBI) has raised a red-flag on the spike in non-performing assets (NPAs) under the government's flagship scheme to support micro enterprises in the country -- the Pradhan Mantri Mudra Yojana. This means that a large part of those availing MUDRA loans are failing to repay the loans when due.

According to Finance Ministry sources, RBI has cautioned the ministry that the scheme might turn-out to be the next big source of NPAs, which have plagued the banking system.

If an individual or a company takes a loan from a bank and then fails to repay the interest or the principal amount when it is due, the loan becomes non-performing and is hence termed as a non-performing asset. They are also known as bad loans.

The PMMY was launched on April 8, 2015. Under the scheme, banks are required to finance micro and small entrepreneurs for up to Rs 10 lakh. The interest rate on these loans ranges from 8-12 per cent. These loans are granted by private banks, public sector banks, mico-finance institutions, among others.

The central bank has flagged that bad loans under PMMY have risen to Rs 11,000 crore.

As per the annual report of PMMY, 2017-18, total disbursements under the scheme stood at Rs 2.46 trillion in FY 18. 

Out of this, 40 per cent were disbursed to women entrepreneurs and 33 per cent to social categories. More than 4.81 crore micro borrowers have benefited through PMMY during the year FY2017-18.

Loans can be granted under three categories - up to Rs 50,000 under 'Shishu'; Rs 50,001-Rs 5 lakh under ‘Kishore' and between Rs 5,00,001 and Rs 10 lakh under ‘Tarun' category.

In addition, RBI's caution comes at a time when the country's financial system in reeling under sevier stress due to the IL&FS crisis which continues to hurt banks with impairments, the most recent case being IndusInd Bank.