Finance Minister Nirmala Sitharaman Praises Indian Financial Regulators, Calls for Balanced Lending by Banks

Finance Minister Nirmala Sitharaman Praises Indian Financial Regulators, Calls for Balanced Lending by Banks

Finance Minister Nirmala Sitharaman commended India’s financial regulators for their efforts in promoting transparency and creating a system that has become a global benchmark. Speaking at the FE Best Banks Awards in Mumbai, she emphasized the need for measured critiques of regulatory bodies, stating that India’s regulators have done a "world-class job" and are admired internationally for their work in overseeing the rapidly expanding markets, banking, and insurance sectors.

While her remarks were not directed at any specific incident, they came in the wake of recent scrutiny on Securities and Exchange Board of India (SEBI) Chairperson Madhabi Puri Buch. Sitharaman stressed that she welcomed reviews and critiques of regulatory bodies but urged a fair assessment of their contributions.

At the event, the Finance Minister also discussed the importance of prudent lending by banks, warning against both over-lending, which could lead to insolvency risks, and under-lending, which could stifle growth. She called for a balanced approach that maximizes profits while minimizing risks, advising banks to steer clear of long-term infrastructure projects, which are better handled by specialized institutions like the National Bank for Financing Infrastructure and Development (NabFID).

Sitharaman also addressed concerns about fiscal discipline amid populist measures ahead of the 2024 general elections. She clarified her stance against unsustainable "freebies," differentiating them from welfare spending that aligns with the fiscal budget. The minister cited alarming levels of committed expenditure in some state governments’ budgets, reaching as high as 80%, and encouraged them to develop medium-term financial strategies and explore new revenue streams to maintain fiscal health.

On inflation, the Finance Minister refrained from taking a definitive position on revising the Reserve Bank of India’s inflation targeting framework. She did, however, acknowledge the disparity between consumer and wholesale price indices and stressed the need for inflation assessments to be relevant to the times.

Responding to questions about governance under the Modi 3.0 government, Sitharaman noted that the pressure to perform has been consistent since 2014, with decision-making becoming even more dynamic as the government focuses on long-term growth goals, particularly looking ahead to 2047.

On the stagnant manufacturing sector, which has hovered around 15-16% of the GDP for the last decade, Sitharaman pointed to the success of production-linked incentives (PLI) across various sectors, including mobile phones, renewable energy, chip manufacturing, and green energy components like hydrogen and advanced chemistry cells.

Sitharaman also addressed concerns about weak consumption, stating that improvements are being seen in both rural and urban areas. She emphasized that consumption support should come through capital expenditure rather than direct revenue expenditure, as capital spending has a more significant multiplier effect on the economy and helps in addressing inequality.