DFS Secretary exhorts banks to lower cost of borrowing for small businesses

New Delhi: Department of Financial Services Secretary M Nagaraju on Friday exhorted banks to lower interest rates on loans given to small businesses to boost the economy.

Acknowledging that banks have been posting healthy growth in the micro, small and medium enterprises books, Nagaraju said there is a need to increase lending to small businesses.

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At present, banks lend to corporate entities at rates as low as 7 percent, while the smaller businesses are charged upwards of 9-11 percent, the DFS secretary said while addressing the Indian Banks Association event here.

"I want to give a challenge to banks -- can we reduce borrowing costs for small businesses?" Nagaraju said.

He also urged banks to ensure that they do not book any losses on the portfolio while lowering the costs.

Responding to a question, CS Setty, who chairs both the IBA and the largest lender SBI, said that the banks have been doing lending in the credit guarantee sectors at a competitive rate, but will need to look at ways of lowering costs for loans not covered under the government schemes.

One of the ways for banks to lower the lending costs will be to adopt more digital technologies, Setty said, explaining that the cost of reaching the customer and assessing a proposal can go down to negligible levels using digital technologies.

Meanwhile, he also said that corporate customers are declining banks' lending requests at present and suggested that focusing on the smaller businesses wanting loans will be a good strategy.

Pointing to 310 million people who have a bank account, but have not undertaken any saving or borrowing transaction from the account, Nagaraju asked banks to focus on this segment in order to deepen the financial inclusion efforts.

Appreciating the progress on banks' health and profitability, the bureaucrat said all the ratios portend a good sign for the future.

The dozen state-run banks' cohort is at its strongest ever with historically low non-performing assets and historically high profits, he noted.

Nagaraju rued that the capital base is also increasing, even though he has been asking banks to lend more for economic growth.

The credit to GDP ratio will have to hit 130 percent from the present level of under 60 percent in order to realise the goal of Viksit Bharat by 2047, he said.

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