Banks need to make loans more affordable, says FM Nirmala Sitharaman

The Finance Minister also said that inflation is very volatile because of supply and demand constraints

Union Finance Minister Nirmala Sitharaman on Monday called on banks to make interest rates more affordable at a time when the government wants industries to build capacity. She described the current high cost of borrowing as “very stressful”. 

 “…when you look at India’s growth requirements, you can have so many different voices coming out and saying, the cost of borrowing is really very stressful. At a time when we want industries to ramp up and move building capacities… bank interest rates will have to be far more affordable,” Sitharaman said at State Bank of India (SBI’s) annual business and economic conclave. Retail and small borrower lending rates are linked to the Reserve Bank of India’s policy repo rate, while corporate loans depend on the marginal cost of funds-based lending rate (MCLR). 

 

Her comments came days after Union Commerce Minister Piyush Goyal last week made a case for the RBI to cut interest rates to boost economic growth. He also suggested looking through food prices while deciding on monetary policy. RBI Governor Shaktikanta Das, on the other hand, has maintained that there are significant risks to the inflation outlook and that any premature move could upset the balance. 

 

The finance minister, in her address, described inflation as very volatile, attributing the fluctuations to supply and demand constraints. She noted that three key perishable goods — onions, tomatoes, and potatoes — are heavily influencing inflation figures. In October, consumer price inflation stood at 6.2 per cent and food inflation on a year-on-year basis surged to 10.87 per cent, fuelled by soaring prices of vegetables (up 42.18 per cent).

 

 “It is the top three perishable goods that are causing stress on inflation numbers; for the core others, the numbers are actually below 3 or 4 (per cent)… I do not want to get into this debate of whether perishables should be part of inflationary measure, index or whatever, and whether it is just a supply chain problem (or) demand supply problem which should influence the decision of the Monetary Policy Committee or not.,” Sitharaman said.

 

She noted that inflation is a complex issue impacting the common man and said the government has taken supply-side measures, particularly in edible oils and pulses. Efforts are underway to address supply chain bottlenecks and improve storage facilities to reduce volatility caused by demand-supply imbalances.

 

On broader concerns of an economic slowdown, the minister reassured that the government is “fully aware” of challenges stemming from both domestic and global factors but argued there was no need for “undue concerns”. Recent high-frequency indicators, she said, point to sustained growth momentum.

 

The finance minister also called for a sharper focus on core banking practices, expressing concern over mis-selling, which she said indirectly contributes to higher borrowing costs for customers. “Trust should be built by the way you offer your portfolios, by the way you offer your service, and by the way you look at each customer's requirement without clubbing them into one class,” she said, adding, “banks must prioritise transparency, ethical practices, and clear communication to earn people’s trust.” she said.

 

Referring to banks’ role in distributing insurance products, she acknowledged their contribution to improving insurance penetration but warned against unethical practices. “While this has significantly contributed to improving insurance penetration across the country, it has also raised concerns about instances of mis-selling,” she said.

 

Sitharaman also highlighted the importance of small business loans, setting ambitious MSME lending targets for banks: Rs 6.12 trillion for FY26 and Rs 7 trillion for FY27. She asked banks to lend an additional Rs 1.54 trillion in FY25, above the estimated Rs 4.21 trillion.