Adding to the growing calls for lower interest rates, union finance minister Nirmala Sitharaman on Monday said that banks must make interest rates affordable to reduce the cost of borrowing. Dismissing concerns about a slowdown in growth, the finance minister assured that the government is fully aware of the challenges posed by domestic and global factors and stated that there is “no cause for undue concern.”
“What is important is when you look at India’s growth requirements, and you can have so many different voices coming out and saying the cost of borrowing is really very stressful, and at a time when we want industries to ramp up and move (to) building capacities, bank interest rates will have to be far more affordable,” Sitharaman said at the 11th SBI Banking & Economics Conclave.
Finance minister’s comments come after union minister of commerce and industry Piyush Goyal said last week that the Reserve Bank of India (RBI) should cut the key benchmark interest rates to boost economic growth and ignore food prices while deciding on monetary policy.
However recent spike in inflation, largely driven by a surge in vegetable prices, have dimmed the hopes of rate cut in December. The Consumer Price Index (CPI) jumped to a 14-month high of 6.21% in October, breaching the RBI’s comfort level of 6%. The consumer price inflation was at 5.5 % in September.
Exuding confidence about the country’s economic growth, the finance minister said that high-frequency indicators are pointing to strong activity on the ground.
“India’s economy remains resilient, underpinned by strong macroeconomic fundamentals, moderating inflation, a robust external position and continual fiscal consolidation have reinforced confidence among both consumers and businesses,” the finance minister said.
Acknowledging that there are voices wondering if the government’s fiscal consolidation is hurting economic activity, the finance minister denied any such thing, saying that growth is a priority for the government.
“Let me assure you all that the government is closely monitoring an evolving situation. We remain committed to taking all necessary measures to ensure that India remains fully and firmly on course to become the third-largest economy in the world,” Sitharaman said.
She also pitched for a rating upgrade, saying it is time for independent rating agencies to take a call on it.
Sitharaman said, small business loans are very important and set an MSME lending target of Rs 6.12 lakh crore for FY26 and Rs 7 lakh crore for FY27, on top of the Rs 5.75 lakh crore she has asked them to do in FY25.
She asked banks to concentrate on their core function of giving loans while stressing that the “misselling” of insurance products also indirectly adds to the cost of borrowing for an entity.
“Misselling…has added or contributed in indirect ways of increased cost of borrowing for the customers. So, banks will have to look at it with a lot more emphasis on their core banking activities and not burden the customers with insurances which they don’t require,” the minister said.
To earn the trust of people, banks must prioritise transparency, ethical practices and clear communication strategies, she added. She highlighted that the country’s bank credit-to-GDP ratio stands relatively low at 58.7%, compared to global averages. It underscores a significant opportunity for financial deepening and credit expansion within the economy, she said.