Speaking at the State Bank of India Economist Conclave, on whether there is a case for a policy rate cut, the FM said “banks’ interest rates will have to be far more affordable” while adding that she does not want to get into the debate about whether perishables should be part of the inflationary measure index.
Banks have facilitated the distribution of insurance project products, Sitharaman said. “While this model has significantly contributed to improving insurance penetration across the country, it has also raised concerns about instances of mis-selling … I would say, it added or contributed in indirect ways to the increased cost of borrowing for the customers.”
She directed banks to remain focused on their core activity of mobilising deposits and lending money.
On interest rates, she said: “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 a time when we want industries to ramp up and building capacities, bank interest rates will have to be far more affordable.”
She made these comments within a week of commerce minister Piyush Goyal urging the Reserve Bank of India to cut rates. He had stated that it is an “absolutely flawed theory” to consider food inflation while deciding the policy rates. The RBI monetary policy, which will be the last before governor Shaktikanta Das’ second term ends, is scheduled for December 6. The RBI has kept policy rates unchanged at 6.5% since February 2023.Sitharaman said digital financial inclusion is an important goal so that cost-effective, digital means can reach everybody. She pointed out that between 2011 and 2021, the number of adults with an account in a formal financial institution more than doubled from 35% to 77% of the population even as the problem was recognised in 2008.She encouraged banks and National Asset Reconstruction Company Ltd (NARCL) to work together. NARCL has acquired 18 non-performing accounts with a loan exposure of around Rs 92,000 crore, while offers on assets worth Rs 1.25 lakh crore are at different stages of acquisition, she said.
She urged public sector banks to give collateral-free loans to the MSME segment and transition towards alternative credit risk assessment models such as cash-flow-based lending.
The banking sector has relied heavily on the collateral-based lending model, which she pointed out does not always align with the unique needs and financial structures of MSMEs.
Banks should target to lend Rs 1.54 lakh crore to MSMEs fiscal 2025, Rs 4.21 lakh crore in FY26 and Rs 6.12 lakh crore in FY27.
Speaking on concerns arising from recent signs of moderation in certain economic indicators, she said India’s economy remains resilient, underpinned by strong macroeconomic fundamentals, moderating inflation, a robust external position and continued fiscal consolidation. India, she said, is committed to becoming the third largest economy.
She said banks must prioritise transparency, ethical practices and clear communication strategies to earn people’s trust.