Are Banks Overcharging Interest Rates to SME Borrowers in India?
Small and Medium Enterprises (SMEs) in India are crucial to the economy, contributing to job creation, innovation, and overall growth. However, many SME borrowers face the burden of high-interest rates on loans , which can impede their growth prospects. Despite efforts by the Indian government and financial institutions to provide better access to credit, the question arises: Are banks overcharging interest rates to SME borrowers in India? The Issue of High-Interest Rates One of the major challenges SMEs face in India is the high cost of borrowing. Interest rates on loans for SMEs often range between 10% to 24%, significantly higher than those for large corporations. This disparity exists due to several factors. SMEs are considered riskier borrowers by banks because they lack established credit histories, collateral, and often operate in unregulated sectors. As a result, banks charge higher rates to mitigate the risk associated with these loans. Furthermore, the cost of fun...