The banks are heavily loaded with number of bank loans defaulters and heavy backlog of NPA (Non Performing Assets) of which have turned into from assets to liability. The situation particularly in Public Sector Government Commercial banks are so critical that the Union Government is forced to give them Budgetary Capital Support to keen them in business. This type of NPA is overdue mainly on big business houses of the private sector like Vijay Mallya-Niram Modi etc. etc. But now the Central Government scheme of “Mudra Loan” another financial calamity on banks which is created by the Government itself. It is strange paradox that on one hand the Government is providing working capital to its commercial banks to overcome the problem created by the NPA caused by the private sectors business and on the other hand Government own scheme created another set of NPA on the banks. If such a situation is not corrected within short time the public sector banks will go bankrupt. Central Government with a big fanfare launched the schemes of skill development coupled with Mudra Loan Yojna to make the people stand on their own feet with the establishment of business and industry of their own and become self employed. In earlier days in different regimes such schemes were also launched with very easy banks loans and almost all proved disasters. One scheme was “Step up” of just Rs.5000 bank loan to set up ordinary business. No bank guarantee was required on such “Step Up” loans. About 90 per cent of step up loans takers never returned money and they instead of becoming self employed become defaulters and bank lost the money. The Modi Government’s “Mudra Yojna” is an enlargement of the “Step Up” Yojna. In Mudra Yojna the unemployed were given skill training and provided “Mudra Loan” of substantial and heavy amount to set up business and industrial unit become self employed but in reality they become defaulters and under Mudra Loan the NPA of banks have reached upto Rs.14,358 crores and still mounting up. Under the “Mudra Loan” from Rs.10,000/- to Rs.10 lakh were provided. The Mudra Loan Yojna was launched in 8th April 2015 and so far loans of Rs.5,74,325 crores were disbursed and 12,78,000 people were given Mudra Loan. It is widely alleged that in earlier loans to private sectors and the high official were involved in high cut and commission from the loan amount and this time in Mudra a political party having cut from such loans recipients for political funding. The NPA racket is continuing now it has moved from bank officials to politicians. It is absolutely wrong concept to think that by just providing loans one can set up business industrial unit and run it successfully. Business and industry require certain basis aptitude for it.