Business News

Mumbai: Finance minister Nirmala Sitharaman on Monday expressed concerns over the mis-selling of products, particularly insurance, stating that it adds to the customers' borrowing costs. Speaking at the State Bank of India Economist Conclave, on whether there is a case for a policy rate cut, the FM said "banks’ interest rates will have to be far more affordable" while adding that she does not want to get into the debate about whether perishables should be part of the inflationary measure index.Banks have facilitated the distribution of insurance project products, Sitharaman said. "While this model has significantly contributed to improving insurance penetration across the country, it has also raised concerns about instances of mis-selling … I would say, it added or contributed in indirect ways to the increased cost of borrowing for the customers." She directed banks to remain focused on their core activity of mobilising deposits and lending money.On interest rates, she said: "When you look at India's growth requirements, and you can have so many different voices coming out and saying the cost of borrowing is really very stressful, and a time when we want industries to ramp up and building capacities, bank interest rates will have to be far more affordable."She made these comments within a week of commerce minister Piyush Goyal urging the Reserve Bank of India to cut rates. He had stated that it is an "absolutely flawed theory" to consider food inflation while deciding the policy rates. The RBI monetary policy, which will be the last before governor Shaktikanta Das’ second term ends, is scheduled for December 6. The RBI has kept policy rates unchanged at 6.5% since February 2023.Sitharaman said digital financial inclusion is an important goal so that cost-effective, digital means can reach everybody. She pointed out that between 2011 and 2021, the number of adults with an account in a formal financial institution more than doubled from 35% to 77% of the population even as the problem was recognised in 2008.She encouraged banks and National Asset Reconstruction Company Ltd (NARCL) to work together. NARCL has acquired 18 non-performing accounts with a loan exposure of around Rs 92,000 crore, while offers on assets worth Rs 1.25 lakh crore are at different stages of acquisition, she said. She urged public sector banks to give collateral-free loans to the MSME segment and transition towards alternative credit risk assessment models such as cash-flow-based lending.The banking sector has relied heavily on the collateral-based lending model, which she pointed out does not always align with the unique needs and financial structures of MSMEs.Banks should target to lend Rs 1.54 lakh crore to MSMEs fiscal 2025, Rs 4.21 lakh crore in FY26 and Rs 6.12 lakh crore in FY27.Speaking on concerns arising from recent signs of moderation in certain economic indicators, she said India's economy remains resilient, underpinned by strong macroeconomic fundamentals, moderating inflation, a robust external position and continued fiscal consolidation. India, she said, is committed to becoming the third largest economy.She said banks must prioritise transparency, ethical practices and clear communication strategies to earn people's trust.

Union Finance Minister Nirmala Sitharaman will meet her state counterparts in Jaisalmer, Rajasthan, on December 21 for the 55th meeting of the GST (Goods and Services Tax) Council.The meeting is much awaited as the decision on exemption or lower GST rate on health and life insurance would be taken.The Council may also take up some rationalisation exercise and reduce tax rates on a host of common items from 12 per cent to 5 per cent as per the recommendations of a panel of state ministers.Last month, the group of ministers (GoM) on health and life insurance GST broadly agreed on exempting insurance premiums paid for term life insurance policies, and senior citizens' health insurance from GST.Also, GST on premiums paid by individuals, other than senior citizens, for health insurance with coverage of up to Rs 5 lakh is proposed to be exempted. However, 18 per cent GST will continue on premiums paid for policies with health insurance cover of over Rs 5 lakh.The GST Council in its 54th meeting on September 9 had tasked the GoM to finalise the report on GST levy on insurance by October-end.Separately, the GoM on GST rate rationalisation has also suggested that the GST Council rejig tax rates on a host of goods, including packaged drinking water, bicycles, exercise notebooks, luxury wrist watches, and shoes. This rate rejig is expect to result in revenue gain of about Rs 22,000 crore.The GoM on rate rationalisation proposed reducing GST on packaged drinking water of 20 litre and above to 5 per cent from 18 per cent. If the GoM's recommendation is accepted by the GST Council, GST on bicycles costing less than Rs 10,000 will be reduced to 5 per cent from 12 per cent.Also, GST on exercise notebooks will be reduced to 5 per cent from 12 per cent. The GoM also proposed hiking GST on shoes above Rs 15,000/pair from 18 per cent to 28 per cent. It also proposed hiking GST on wrist watches costing above Rs 25,000 from 18 per cent to 28 per cent.Bihar Deputy Chief Minister Samrat Chaudhary is the convenor of the 13- member GoM on health and life insurance and 6-member GoM on rate rationalisation.Currently, GST is a four-tier tax structure with slabs at 5, 12, 18, and 28 per cent. Under GST, essential items are either exempted or taxed at the lowest slab, while luxury and demerit items attract the highest slab. Luxury and sin goods attract cess on top of the highest 28 per cent slab. The average GST rate has fallen below the revenue neutral rate of 15.3 per cent, prompting the need to start discussions on GST rate rationalisation.