Mudra Loan Interest Rates 2026: Bank-wise Comparison Guide

How Mudra Loan Interest Rates Work

Unlike many government subsidy schemes where interest rates are fixed by the government, Mudra loan interest rates are set by individual lending institutions. The Reserve Bank of India (RBI) provides broad guidelines, but each bank has the autonomy to determine its own rate structure based on its cost of funds, risk appetite, and operational costs.

This means the interest rate you pay can vary significantly — sometimes by 3 to 5 percentage points — depending on which bank you choose. For a Rs 5,00,000 Kishore loan over 4 years, a 3% rate difference translates to approximately Rs 33,000 in additional interest. Choosing the right bank is therefore not just a convenience decision; it directly impacts your total cost of borrowing.

Current Interest Rate Ranges (2026)

As a general guideline, Mudra loan interest rates in 2026 fall within these ranges:

| Loan Category | Rate Range | |---|---| | Shishu (up to Rs 50,000) | 10% to 13.5% per annum | | Kishore (Rs 50,001 to Rs 5,00,000) | 11% to 16% per annum | | Tarun (Rs 5,00,001 to Rs 10,00,000) | 11.5% to 17% per annum | | Tarun Plus (Rs 10,00,001 to Rs 20,00,000) | 12% to 18% per annum |

These are the outer bounds. Your actual rate falls somewhere within this range based on your credit profile, the bank's current pricing, and various other factors we will discuss below.

Bank-by-Bank Comparison

State Bank of India (SBI)

SBI is the largest Mudra loan disburser in India, accounting for nearly 15% of all Mudra loans by value. Their rates are among the most competitive, particularly for Shishu and Kishore categories.

| Category | Interest Rate | |---|---| | Shishu | 10.00% to 12.25% | | Kishore | 11.15% to 14.50% | | Tarun | 11.75% to 15.25% |

Key features: Fastest processing among PSU banks, available through Yono SBI app, minimal paperwork for Shishu loans for existing SBI customers.

Punjab National Bank (PNB)

PNB is the second-largest public sector Mudra loan disburser. They have a strong presence in North India and are particularly active in rural and semi-urban areas.

| Category | Interest Rate | |---|---| | Shishu | 10.25% to 12.50% | | Kishore | 11.50% to 15.00% | | Tarun | 12.00% to 15.75% |

Key features: Active in tier-2 and tier-3 cities, dedicated MSME branches in most districts, relatively flexible documentation for Shishu loans.

Bank of Baroda (BoB)

Bank of Baroda offers competitive rates and has been aggressively growing its Mudra loan portfolio in recent years.

| Category | Interest Rate | |---|---| | Shishu | 10.15% to 12.35% | | Kishore | 11.25% to 14.75% | | Tarun | 11.50% to 15.50% |

Key features: Online application through BoB World app, competitive rates for women entrepreneurs, active in Western India (Gujarat, Maharashtra, Rajasthan).

Union Bank of India

After the merger with Corporation Bank and Andhra Bank, Union Bank has become the fifth-largest public sector bank with a wide network across India.

| Category | Interest Rate | |---|---| | Shishu | 10.30% to 12.60% | | Kishore | 11.60% to 15.25% | | Tarun | 12.25% to 16.00% |

Key features: Strong presence in South India, competitive rates for SC/ST applicants, dedicated MSME loan cells.

Canara Bank

Canara Bank is one of the oldest and most trusted public sector banks, with a particularly strong network in Karnataka, Tamil Nadu, and Kerala.

| Category | Interest Rate | |---|---| | Shishu | 10.20% to 12.45% | | Kishore | 11.40% to 15.10% | | Tarun | 12.10% to 15.80% |

Key features: Strong in South India, dedicated Mudra loan cells in major branches, competitive rates for women-led businesses.

Bank of India (BOI)

Bank of India offers moderate rates and has a good track record for Mudra loan processing, particularly in Maharashtra and Gujarat.

| Category | Interest Rate | |---|---| | Shishu | 10.35% to 12.55% | | Kishore | 11.65% to 15.30% | | Tarun | 12.30% to 16.10% |

Key features: Competitive rates in Maharashtra region, streamlined process for existing BOI customers, good approval rates for Shishu loans.

Indian Bank

Post-merger with Allahabad Bank, Indian Bank has expanded its footprint across India with particularly strong presence in Tamil Nadu and Uttar Pradesh.

| Category | Interest Rate | |---|---| | Shishu | 10.25% to 12.50% | | Kishore | 11.50% to 15.15% | | Tarun | 12.15% to 15.90% |

Key features: Strong in South India and UP, competitive rural lending rates, dedicated MSME branches.

HDFC Bank

HDFC Bank is the largest private sector Mudra loan disburser. Their rates are typically higher than public sector banks, but they offer faster processing and a more streamlined experience.

| Category | Interest Rate | |---|---| | Shishu | 11.00% to 13.50% | | Kishore | 12.50% to 16.00% | | Tarun | 13.00% to 17.00% |

Key features: Fastest processing time (often 3 to 5 days for existing customers), online application and tracking, pre-approved Mudra loans for eligible customers, superior digital experience.

ICICI Bank

ICICI Bank offers Mudra loans primarily to existing customers and small businesses in urban and semi-urban areas.

| Category | Interest Rate | |---|---| | Shishu | 11.25% to 13.75% | | Kishore | 12.75% to 16.25% | | Tarun | 13.25% to 17.25% |

Key features: Pre-approved offers for existing ICICI customers, instant Shishu loans through iMobile app, strong urban presence, requires existing banking relationship for most applications.

Axis Bank

Axis Bank is selective in its Mudra loan disbursement, focusing on higher-quality borrowers with established businesses.

| Category | Interest Rate | |---|---| | Shishu | 11.25% to 13.25% | | Kishore | 12.00% to 15.50% | | Tarun | 12.50% to 16.50% |

Key features: Competitive rates for borrowers with CIBIL score above 750, online application for existing customers, faster disbursal for pre-approved applicants.

Regional Rural Banks (RRBs) and Micro Finance Institutions (MFIs)

If you live in a rural or semi-urban area, Regional Rural Banks and MFIs can be an excellent option for Shishu loans:

| Institution Type | Shishu Rate | Kishore Rate | |---|---|---| | Regional Rural Banks | 10.50% to 13.00% | 12.00% to 15.50% | | NBFC-MFIs | 12.00% to 15.00% | 13.50% to 18.00% | | Small Finance Banks | 11.50% to 14.00% | 12.50% to 16.50% |

Note: RRBs often have the highest approval rates for Shishu loans in rural areas, but their processing can be slower than nationalised banks. NBFC-MFIs charge the highest rates but are the most accessible for borrowers with thin credit files.

Factors That Affect Your Interest Rate

1. Credit Score (CIBIL)

Your CIBIL score is the single most influential factor in determining your interest rate. Here is how it typically maps:

| CIBIL Score | Impact on Rate | |---|---| | 750+ | Best rates — bottom of the bank's range | | 700-749 | Competitive rates — slightly above minimum | | 650-699 | Average rates — mid-range | | 600-649 | Higher rates — top end of range | | Below 600 | Loan may be declined, or highest rate applied |

A 50-point improvement in your CIBIL score can reduce your interest rate by 0.5% to 1.5%, which translates to significant savings over the loan tenure.

2. Loan Category and Amount

Higher loan amounts generally command slightly higher rates because the bank's exposure (and risk) is greater. Shishu loans typically get the best rates, while Tarun loans carry a premium.

3. Bank Type

Public sector banks (SBI, PNB, BoB, etc.) consistently offer lower rates than private banks (HDFC, ICICI, Axis). The trade-off is that PSU banks may have slower processing and more paperwork. Private banks charge a premium for convenience and speed.

4. Existing Banking Relationship

If you already have a savings or current account with the bank, especially one with regular transactions and a healthy average balance, you may receive a preferential rate. Some banks offer 0.25% to 0.75% discounts for existing customers.

5. Business Vintage

Businesses operating for more than 2 years with a clean financial track record are considered lower risk. Banks may offer these borrowers rates 0.5% to 1% lower than new businesses.

6. Sector and Risk Profile

Some business sectors are considered higher risk by banks. For example, seasonal businesses, construction-linked businesses, and businesses with long payment cycles may attract slightly higher rates. Conversely, essential services (medical shops, food businesses) may get better terms.

7. Women Entrepreneurs

Several banks offer special rates for women-led businesses. The discount typically ranges from 0.25% to 0.50% below the standard rate. SBI, Bank of Baroda, and Union Bank are known for favourable women entrepreneur schemes under PMMY.

8. SC/ST and Minority Applicants

Under priority sector lending requirements, banks may offer marginally better rates or relaxed criteria for SC/ST applicants and minority community members. Check with your local bank about specific concessions.

Fixed vs Floating Interest Rates

Most Mudra loans are disbursed on a floating rate basis, meaning the rate is linked to the bank's benchmark lending rate (MCLR or External Benchmark Lending Rate/EBLR). Here is what this means:

Floating Rate (Most Common)

• Linked to the bank's EBLR or MCLR plus a spread
• Rate changes when the benchmark changes (usually quarterly)
• If RBI cuts the repo rate, your EMI may decrease
• If RBI raises rates, your EMI may increase
• Most banks offer Mudra loans only on floating rate

Fixed Rate (Rare)

• Rate remains constant throughout the loan tenure
• Provides certainty in EMI payments
• Typically 0.5% to 1% higher than the equivalent floating rate
• Only a few NBFCs offer fixed-rate Mudra loans

For most borrowers, floating rates are the better choice because PMMY rates are already competitive, and the risk of significant rate increases over a 3 to 5 year tenure is manageable.

EMI Comparison: Same Loan, Different Banks

To illustrate how bank choice affects your total cost, here is a comparison for a Rs 3,00,000 Kishore loan over 48 months:

| Bank | Rate | Monthly EMI | Total Interest | Total Repayment | |---|---|---|---|---| | SBI | 12.00% | Rs 7,898 | Rs 79,104 | Rs 3,79,104 | | Bank of Baroda | 12.50% | Rs 7,968 | Rs 82,464 | Rs 3,82,464 | | PNB | 13.00% | Rs 8,040 | Rs 85,920 | Rs 3,85,920 | | HDFC Bank | 14.00% | Rs 8,184 | Rs 92,832 | Rs 3,92,832 | | ICICI Bank | 14.50% | Rs 8,256 | Rs 96,288 | Rs 3,96,288 | | Axis Bank | 13.50% | Rs 8,112 | Rs 89,376 | Rs 3,89,376 |

The difference between the cheapest (SBI at 12%) and most expensive (ICICI at 14.5%) option is Rs 358 per month or Rs 17,184 over the full tenure. That is real money that could go back into your business.

EMI Examples for Different Loan Amounts

Rs 50,000 Shishu Loan at 11% for 24 months:

• Monthly EMI: Rs 2,330
• Total interest: Rs 5,920

Rs 2,00,000 Kishore Loan at 13% for 36 months:

• Monthly EMI: Rs 6,735
• Total interest: Rs 42,460

Rs 5,00,000 Kishore Loan at 14% for 60 months:

• Monthly EMI: Rs 11,634
• Total interest: Rs 1,98,040

Rs 10,00,000 Tarun Loan at 14.5% for 60 months:

• Monthly EMI: Rs 23,540
• Total interest: Rs 4,12,400

How to Get the Best Interest Rate

1. Shop Around

Do not accept the first offer. Visit at least 3 to 4 banks (mix of PSU and private) and compare their rate quotes. You can use these quotes as leverage — some banks will match or beat a competitor's offer to win your business.

2. Improve Your CIBIL Score Before Applying

If your score is below 700, spend 3 to 6 months improving it before applying. Pay all dues on time, reduce credit card utilisation, and correct any errors in your credit report. The interest savings will more than compensate for the wait.

3. Apply at Your Existing Bank

Banks offer better rates to existing customers because they already have data on your financial behaviour. If you have maintained a healthy savings or current account for over a year, use that bank for your Mudra loan application.

4. Negotiate

Yes, you can negotiate interest rates, especially for Kishore and Tarun loans. Come prepared with:

• Rate quotes from competing banks
• Your strong CIBIL score printout
• Clean bank statements showing healthy cash flows
• A professional project report (use MudraGen to generate one)

5. Consider Public Sector Banks First

For the lowest absolute rates, PSU banks are almost always cheaper. If speed is not critical and you can handle slightly more paperwork, PSU banks offer the best value.

6. Leverage Special Schemes

Ask about special schemes for:

• Women entrepreneurs (Mudra loans under Stand-Up India or bank-specific women schemes)
• SC/ST and minority applicants
• Existing Mudra borrowers (graduation to higher categories often comes with preferred rates)
• Businesses in notified backward areas or MSME clusters

7. Choose the Right Tenure

Shorter tenures reduce total interest but increase monthly EMIs. Longer tenures reduce EMIs but increase total interest paid. Find the sweet spot where your monthly EMI is comfortable (ideally not more than 40% of your net monthly business income) while minimising total interest cost.

Rate Negotiation Tips

When negotiating with the bank:

• Be polite but firm — remember, banks need borrowers too
• Reference specific competing offers (bring printouts if possible)
• Highlight your strengths: clean credit history, business experience, strong project report
• Ask about processing fee waiver — even if the rate is non-negotiable, some banks will waive or reduce the processing fee
• Consider bringing total business to the bank (savings account, current account, insurance, deposits) in exchange for a rate concession

Preparing Your Application for the Best Rate

The quality of your application directly influences the rate you are offered. Banks assign internal risk grades to each application, and lower-risk grades get better rates.

To receive the best possible risk grading:

1. Maintain a CIBIL score above 750
2. Submit a professional project report with realistic financial projections. MudraGen generates bank-ready reports with CMA data, which demonstrates financial rigour to the credit officer.
3. Show clean bank statements with regular inflows and no bounced cheques
4. Provide complete documentation — incomplete applications signal disorganisation
5. Offer higher margin money if possible — even 5% above the minimum shows commitment

Conclusion

Mudra loan interest rates in 2026 range from about 10% for the best Shishu loan offers at public sector banks to 18% for Tarun Plus loans at NBFCs. The exact rate you receive depends primarily on your credit score, the bank you choose, and the quality of your application.

The key takeaway: do not simply walk into the nearest bank and accept whatever rate is offered. Research your options, compare at least 3 to 4 institutions, improve your credit profile, and present a professional application with a strong project report.

Need a project report to strengthen your application? MudraGen generates comprehensive, bank-ready project reports with CMA data and financial projections — free to get started. A professional report not only helps with approval but can also support rate negotiation by demonstrating the viability of your business.