‘Borrowing cost is proving to be...’: Nirmala Sitharaman asks banks to lower interest rates to boost growth

Union Finance Minister Nirmala Sitharaman acknowledged that high interest rates are causing stress for borrowers and urged banks to make lending more affordable.  

Speaking at an event organised by the State Bank of India (SBI) on November 18, she emphasised that India’s growth depends on industrial expansion, and lower interest rates would be crucial in achieving the country’s “Viksit Bharat” (Developed India) vision. 

“At a time when industries need to ramp up and build capacities, the cost of borrowing is proving to be a significant challenge,” Sitharaman said. “Banks need to ensure that interest rates are more affordable, which will help facilitate the necessary investments to support India’s growth.” 

Last week, Union Commerce Minister Piyush Goyal echoed similar concerns, urging the Reserve Bank of India (RBI) to reduce interest rates to foster economic growth. He also recommended that the RBI consider excluding food prices when making decisions on monetary policy, as they have been a significant driver of inflation. 

It is important to note that most commercial banks align their lending rates with the RBI’s monetary policy decisions, with many loans being linked to the repo rate. Currently, inflation remains above the RBI’s comfort zone of 6 percent, with October’s inflation at 6.2 percent, dampening hopes for a rate cut anytime soon. 

Inflation and economic growth 

Sitharaman noted that the rise in inflation is largely due to fluctuations in a few perishable items, with core inflation — excluding food and energy — remaining more manageable at around 3-4 percent.  

However, she stressed that the government has been focusing on supply-side measures to address price volatility, particularly for items like edible oils and pulses. Despite cyclical supply-side challenges, she assured that efforts are underway to improve storage facilities and reduce price volatility. 

Addressing the issue of inflation, Sitharaman avoided entering the debate on whether food prices should be considered in inflation indices or how the RBI should set interest rates. “Inflation is a complex issue that affects everyone, and the government is working on measures to address supply-side constraints,” she said. 

Addressing concerns about the potential slowdown in growth, Sitharaman reassured the public that the government is aware of both domestic and global challenges and urged that there is no need for “undue concerns”. High-frequency economic indicators suggest strong ongoing activity, she added. 

Refuting claims that the government’s fiscal consolidation is hindering economic growth, the finance minister emphasised that growth remains a top priority. She also made a case for India’s credit rating to be upgraded, encouraging independent rating agencies to consider such a move. 

Sitharaman also urged banks to focus on their core function of lending, criticising the practice of misselling insurance products. She noted that misselling adds indirect costs to borrowing for customers and undermines trust in the banking system. “Trust in banks can only be built through transparent, ethical practices and clear communication with customers,” she said. 

Lending target for MSMEs 

Regarding small businesses, Sitharaman set ambitious lending targets for Micro, Small, and Medium Enterprises (MSMEs), including a target of Rs 6.12 lakh crore for FY26 and Rs 7 lakh crore for FY27, in addition to the Rs 5.75 lakh crore target for FY25. 

In her remarks, she also pointed to the banking sector’s success in account opening, urging banks to now focus on channelling savings into investments, risk capital formation, insurance coverage, and wealth management services. 

On the global stage, Sitharaman expressed concern over countries withdrawing from climate change negotiations, calling it a “worrying” development. She also criticised unilateral actions, like those taken by the European Union, to promote conscientious environmental behaviours. “Climate change is a global issue that requires international cooperation, not isolated measures,” she said. 

(With inputs from PTI)