Banks must lend to small businesses at lower interest rates: DFS Secretary

M Nagaraju, Secretary, Ministry of Financial Services | Photo credit: ANI

He noted that banks are chasing companies and offering loans at 7-8 percent. But the loan offers are rejected.

“We keep asking if they (companies) need money. They are taking off. But those who want it, we lend at maybe 7 percent,” Nagaraju said in his speech at IBA’s 78.^e General Meeting.

“Let’s say, a maid, a rickshaw puller, a driver… they are the people who need loans. And we lend at between 9 and 11 percent… And NBFCs lend to them at a little over 20 percent.

“Can we do anything? For small business loans, we have institutions that guarantee (the loans). So can we reduce the cost of financing for these borrowers?” he said.

Nagaraju noted that the Indian financial system is still largely dominated by banks. But the banks’ credit ratio to GDP is only 57 percent. This is significantly lower than economies such as China, which has a credit-to-GDP ratio of 199 percent; the US with 147 percent and Japan with 153 percent.

“It is clear that there is a huge gap to bridge as we look ahead to Viksit Bharat 2047, as we aim for nominal GDP growth from $3.7 trillion to $30 trillion today. We project a per capita income of $18,000-20,000, up from $2,800…. To meet 2047 ambitions, total credit to the private non-financial sector must be expanded to at least 130 percent,” he said.

Published on February 20, 2026