Nirmala Sitharaman pushes for lower bank interest rates: 'Cost of borrowing very stressful'

Union finance minister Nirmala Sitharaman on Monday pitched for a “far more affordable” cost of borrowing saying people are finding current bank interest rates "very stressful". Speaking at the annual business and economic conclave organised by SBI, Sitharaman said India requires industry to ramp up and invest in new facilities, and added that lowering lending rates can help achieve the "Viksit Bharat" aspiration.

"What is important is 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 move (to) building capacities, bank interest rates will have to be far more affordable," Sitharaman said.

Sitharaman, however, made it clear that she does not want to get into the debate of whether food prices should be considered to take calls on rates by the RBI's monetary policy committee.

Most of the commercial banks are tied directly or indirectly to the RBI's calls on interest rates, with the majority of loans using the repo rate as an external benchmark to which loan prices are pegged.

"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.

"Misselling...has added or contributed in indirect ways of 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," the minister said.

Delivering a keynote address at the Conference of Directors of Private Sector Banks, Das urged bank boards to take a hard look at issues like mis-selling of products.

"Unethical practices, such as mis-selling of products or the opening of accounts without proper KYC verification need to be curbed. Staff incentives should be carefully structured to avoid encouraging mis-selling or unethical practices," Das said.

"While such practices may yield short-term gains, they ultimately expose the bank to significant long-term risks, including reputational damage, supervisory scrutiny, and financial penalties," he added.