Need ‘affordable bank interest rates’ to support industry, build capacities

“…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 build capacities, bank interest rates will have to be far more affordable,” Sitharaman said when asked if she expects a reduction in interest rates soon or if there could be a delay in the cut given current inflation print.

Sitharaman’s statement comes days after Minister for Commerce and Industry, Piyush Goyal, had urged the RBI to cut interest rates to boost economic growth and look through food prices while deciding on monetary policy.

The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has kept the repo rate – the key policy rate – steady at 6.5 per cent for 20 consecutive months due to concerns over higher inflation.

In October, the Consumer Price Index (CPI) accelerated to a 14-month high of 6.21 per cent, compared to 5.5 per cent in September. The RBI has been focussing on keeping retail inflation to 4 per cent on a durable basis.

When asked about her concerns on inflation, Sitharaman said there were top three perishable goods that were causing stress on the inflation numbers. The other core items are in the three to four per cent range and are manageable.

She said the country periodically and cyclically suffers from an adequate supply of perishable commodities, and the government is making a lot of efforts towards scientific and more rigorous facilities for such commodities.

“Till you get on top of that issue, you will periodically have this problem of (rise in) onion, tomatoes and potatoes (prices) causing immense stress in a cyclical fashion,” she said.

Allaying concerns arising over recent signs of moderation in certain domestic economic indicators, Sitharaman said the government was fully aware of the challenges posed by both domestic and global factors, and there was “no cause for undue concern”.

Union Finance Minister Nirmala Sitharaman with SBI Chairman CS Setty and other officers during the centenary celebration of the main branch of State Bank of India (SBI Horniman branch) at NCPA, in Mumbai, Monday. (Express Photo)

“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.

She said recent high-frequency indicators also reflect sustained growth momentum. Record e-way bill generation, buoyant trends in rural demand and strong PMI data for manufacturing and services underscore the steady pace of economic activity.

Even foreign direct investment (FDI) inflows have demonstrated healthy growth in FY25, reinforcing global confidence in the country’s economic potential, she said. Currently, foreign exchange reserves comfortably cover 11.8 months of imports and exceed 100 per cent of external debts, underlining the strong net buffer in the Indian economy, she said.

“So, 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.

When asked if the country needs an upgrade in its sovereign rating, the Finance Minister said there is definitely a need to have ratings improved but it will be governed by the consideration of those who do the ratings globally.

She further highlighted that the country’s bank credit-to-GDP ratio stands relatively low at 58.7 per cent (2023-24), compared to global averages. It underscores a significant opportunity for financial deepening and credit expansion within the economy.

The Finance Minister asked banks to be sensitive to credit requirements of medium, small and micro enterprises (MSMEs). She said in the current financial year, an additional lending target of Rs 1.54 lakh crore by banks and NBFCs to MSMEs has been set. This is beyond the estimated Rs 4.2 lakh crore to be lent this year to these entities.

“Banks should target to lend Rs 6.12 lakh crore in 2025-2026 and Rs 7 lakh crore in 2026-2027 to MSMEs,” she said.

Sitharaman also raised concerns about instances of mis-selling of insurance products by banks.

“Mis-selling has contributed in indirect ways to 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,” she said.