Sitharaman seeks 200 bps lending rate cut for MSMEs

The Dollar Business Bureau

Underscoring the need to cut high borrowing costs for the small and medium enterprises (SMEs), Commerce Minister Nirmala Sitharaman on Wednesday pitched for a 200 basis point slash in the benchmark lending rate, while eyeing a fresh approach to lending to the SME players.

“I still hold that the cost of credit in India is high. SMEs, which create a lot of jobs and contribute to exports, are all hard-pressed for funds. And for them, approaching a bank is no solution because of the prevailing rate of interest. I would recommend a 200-bps cut, and I have no hesitation to say this,” Sitharaman said, emphasizing that there is a dire need to provide cheaper credit to the manufacturers and exporters of the sector.

Her recommendation came barely a week after the government chose Urjit Patel as the next Reserve Bank of India (RBI) Governor. Patel, who is regarded as the inflation hawk among the market analysts, will replace the current RBI governor Raghuram Rajan after his term ends next month. The institution has retained the repo rate at 6.5% since April this year.

The new RBI governor is set to announce his first and overall the fifth Bi-Monthly Policy Statement of this fiscal monetary policy on October 4.Although the RBI has slashed the repo rate by 150 basis points since January 2015, the banks’ base lending rates have reduced by only about 60 bps.

Sitharaman also said that banks also need to acknowledge the negative impact of high credit costs on the sector whose competitiveness is directly affected.

She pointed out that the interest subvention scheme has been helpful for exporters in mitigating the impact of global slowdown in demand.