Union Finance Minister Nirmala Sitharaman on Monday urged banks to make interest rates more affordable, emphasizing the need for industries to expand their capacity. Highlighting the challenges posed by high borrowing costs, she described them as “very stressful” during a critical phase of economic growth.
“India’s growth demands are immense, and many voices point to the high cost of borrowing as a significant concern. At a time when we are encouraging industries to scale up and enhance their capacity, bank interest rates must become more affordable,” Sitharaman stated during the State Bank of India (SBI) annual business and economic conclave. She explained that while retail and small borrower lending rates are tied to the Reserve Bank of India’s policy repo rate, corporate loans depend on the marginal cost of funds-based lending rate (MCLR).
Her remarks come shortly after Union Commerce Minister Piyush Goyal called for the Reserve Bank of India (RBI) to lower interest rates to support economic growth, even suggesting that food prices should be excluded when shaping monetary policy. However, RBI Governor Shaktikanta Das has cautioned against such moves, warning of inflation risks that could disrupt economic stability. Sitharaman acknowledged the volatile nature of inflation, citing supply and demand challenges as primary factors. She pointed out that onions, tomatoes, and potatoes, three perishable commodities, have significantly influenced inflation rates.
In October, consumer price inflation stood at 6.2%, with food inflation surging to 10.87% year-on-year, largely driven by a 42.18% increase in vegetable prices. “These three key perishables are driving inflation. For other core items, inflation rates are below 3–4%. Whether perishables should factor into inflationary measures is debatable, as the issue may be rooted in supply chain inefficiencies or demand-supply mismatches, which influence Monetary Policy Committee decisions,” Sitharaman remarked.
The finance minister stressed that inflation remains a critical issue affecting the common man. She highlighted the government’s efforts to address supply chain bottlenecks, particularly for edible oils and pulses, and to improve storage infrastructure to reduce demand-supply volatility.
Addressing concerns about an economic slowdown, Sitharaman reassured that the government is fully aware of challenges arising from domestic and global factors but maintained that there is no cause for undue alarm. She cited recent high-frequency indicators as evidence of sustained economic growth momentum.
On banking practices, she called for greater attention to ethical standards, expressing concern over miss-selling, which indirectly increases borrowing costs. “Trust is built through transparency, ethical practices, and tailoring services to individual customer needs rather than a one-size-fits-all approach,” she emphasized. Sitharaman also praised banks for enhancing insurance penetration but cautioned against unethical sales practices.
Turning to the importance of small business lending, Sitharaman outlined ambitious targets for MSME loans: Rs 6.12 trillion for FY26 and Rs 7 trillion for FY27. She directed banks to provide an additional Rs 1.54 trillion in FY25, exceeding the projected Rs 4.21 trillion, reinforcing the government’s commitment to supporting small businesses and fostering economic resilience.
Useful link for this post:
Ministry of Finance, India: For updates on economic policies and initiatives:
Consumer Price Inflation Reports: Link to India’s inflation data on government statistics
MSME Development in India: Learn more about the government’s MSME programs
World Bank on Lending Practices: Explore global lending and borrowing trends
Financial Literacy and Ethical Banking: Link to resources on ethical banking and consumer protection
Economic Growth Analysis: For insights into India’s economic performance
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