Union Finance Minister Nirmala Sitharaman has called on banks to make loans more affordable, stressing the importance of lower borrowing costs to support industrial expansion and economic growth. Speaking at the State Bank of India’s annual business and economic conclave on Monday, she described the current high interest rates as “very stressful” and a significant hurdle for industries looking to build capacity.
“At a time when we need industries to ramp up and increase capacities, the cost of borrowing is proving to be a major challenge. Bank interest rates must become more affordable to align with India’s growth needs,” Sitharaman said.
Retail and small borrower interest rates are linked to the Reserve Bank of India’s (RBI) policy repo rate, while corporate loans are tied to the marginal cost of funds-based lending rate (MCLR). Sitharaman’s remarks came shortly after Union Commerce Minister Piyush Goyal advocated for an RBI rate cut to stimulate growth, urging policymakers to look beyond food price volatility in their decisions.
Tackling Inflation: Supply-Side Challenges
Addressing inflation, Sitharaman highlighted its volatility, attributing the fluctuations primarily to supply-demand imbalances. She identified three key perishable items—onions, tomatoes, and potatoes—as the primary drivers of inflation.
In October, consumer price inflation stood at 6.2%, while food inflation surged to 10.87% year-on-year due to a sharp 42.18% rise in vegetable prices. “These three perishable goods are heavily influencing inflation figures. For other core categories, inflation remains below 3–4%. Whether perishables should be included in inflation indices or treated as a supply chain issue is a larger debate,” she said.
The government, she assured, is actively addressing these challenges through supply-side measures, including efforts to stabilize prices of edible oils and pulses. Enhanced storage infrastructure and supply chain improvements are also underway to minimize volatility caused by demand-supply imbalances.
Economic Growth Amid Global and Domestic Challenges
On concerns about an economic slowdown, Sitharaman reassured that the government is fully aware of the challenges posed by domestic and global factors. She emphasized that recent high-frequency indicators point to sustained growth momentum and urged stakeholders not to give in to undue worry.
Ethical Banking Practices and Lending Targets
The finance minister also called for greater accountability and transparency in banking operations, emphasizing the need for ethical practices to build customer trust. She expressed concerns about mis-selling of financial products, which indirectly raises borrowing costs for consumers.
“Banks must prioritize trust by offering transparent services and tailoring solutions to individual customer needs instead of grouping them into broad categories,” she said.
While acknowledging the significant role banks play in increasing insurance penetration, Sitharaman cautioned against unethical practices in selling insurance products, urging institutions to balance growth with customer welfare.
In a push to support small businesses, she unveiled ambitious lending targets for Micro, Small, and Medium Enterprises (MSMEs). Banks are expected to extend ₹6.12 trillion in loans by FY26 and ₹7 trillion by FY27, with an additional ₹1.54 trillion required in FY25 over the projected ₹4.21 trillion.
Sitharaman concluded by reiterating the government’s commitment to fostering a robust and inclusive financial ecosystem, urging collaboration between policymakers, banks, and industries to ensure sustainable economic growth.
