DFS Secretary M Nagaraju Calls on Banks to Lower Borrowing Costs for Small Businesses

Department of Financial Services Secretary M Nagaraju has urged banks to consider reducing loan interest rates for small businesses to stimulate economic growth. While banks have shown robust growth in lending to micro, small, and medium enterprises, there is a call to further increase support for these businesses. Currently, banks offer loans to large corporations at rates as low as 7%, but smaller businesses face rates between 9% and 11%.

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During an event organised by the Indian Banks Association, Nagaraju posed a challenge to banks: "Can we reduce borrowing costs for small businesses?" He emphasised the importance of not incurring losses while lowering these costs. CS Setty, who leads both the IBA and SBI, mentioned that banks are already offering competitive rates in credit guarantee sectors but need to explore ways to reduce costs for loans outside government schemes.

Focus on Digital Technologies

Setty suggested that adopting digital technologies could help banks lower lending costs. By using digital methods, the expenses associated with reaching customers and evaluating loan proposals can be significantly reduced. This approach could make lending more efficient and cost-effective.

Currently, corporate clients are declining loan offers from banks, according to Setty. He proposed that banks should shift their focus towards smaller businesses seeking loans as a strategic move. This shift could potentially benefit both the banks and the small business sector.

Enhancing Financial Inclusion

Nagaraju highlighted that 310 million people have bank accounts but haven't engaged in saving or borrowing activities. He urged banks to target this segment to enhance financial inclusion efforts. By doing so, banks can play a crucial role in expanding financial access and participation.

The health and profitability of banks have been commendable, with strong indicators for future growth. The group of twelve state-run banks is currently at its strongest, boasting historically low non-performing assets and high profits. Despite this progress, Nagaraju expressed concern about the increasing capital base while advocating for more lending to drive economic expansion.

Long-term Economic Goals

Nagaraju stressed the need for the credit-to-GDP ratio to rise from under 60% to 130% by 2047 to achieve the vision of Viksit Bharat. This increase is essential for sustained economic development and prosperity in India.

The call for reduced borrowing costs aims to empower small businesses, which are vital for economic growth. By focusing on digital solutions and financial inclusion, banks can contribute significantly to India's long-term economic goals.

With inputs from PTI