DFS Secy urges banks to cut borrowing costs on small-ticket business loans

DFS Secretary M Nagaraju asked banks to lower borrowing costs for small-ticket business loans and expand credit, stressing PSBs' strong capital position and upcoming digital lending portals

Secretary of the Department of Financial Services (DFS) M Nagaraju on Friday urged state-owned banks to lower interest rates on small-ticket business loans not meant for consumption purposes, and asked the Indian Banks’ Association (IBA) to examine the matter seriously. 

 

Additionally, he nudged banks to lend more as they have very healthy capital levels that are increasing every quarter, meaning they have the capacity to lend more. 

Speaking at an IBA event in Mumbai, Nagaraju said banks need not make losses on these exposures, but also should not make high margins on them so that more people can access funding.

 

 

“...We lend to the poorest at the highest rates of interest, while wealthy borrowers get loans at much lower rates. For instance, a maid servant, a rickshaw puller, a driver, or a night watchman — they are the ones who require loans, and we lend to them at between 9 per cent and 10 per cent. At the same time, when it comes to corporate loans, we actively pursue corporates and keep asking whether they require funds… and lend at around 6 per cent or 7 per cent,” he said. 

 

Commenting on the issue, SBI Chairman C S Setty said, “The idea is to bring down the cost of borrowing for small businesses. This has been asked by the government for quite some time. What we have done is, wherever there is government sponsored schemes, or government guarantees, we have brought down the rates for such loans to a uniform level of 9-10 per cent”. 

 

Now, the expectation is whether we can extend this to a broader spectrum of business loans that are not guaranteed by the government, he said, adding that operational costs need to be brought down for this to take shape. 

 

Separately, Nagaraju highlighted that state-owned banks are performing better than private sector banks on almost all metrics. “Today, public sector banks are the strangest they have ever been, with historically low NPAs, historically high profits, and good capital base”, he said. 

 

Additionally, he said, the DFS is looking to create a digital portal for consortium lending with the secondary loan market association, designated as the implement entity, for which the approval of the Reserve Bank of India is already in place. Also, they are creating a unified digital portal for co-lending — a market place that will bring stability to the co-lending business while opening new opportunities for banks and NBFCs to access quality business. 

 

“I urge all banks and the IBA  to expedite the process and launch these portals at the earliest. These are not just projects, they are transformative steps toward a stronger, more agile banking ecosystem”, Nagaraju said.