Shift from Bank Deposits to Market-linked Financial Products
The finance ministry alerted Parliament about a trend where households are moving their deposits from banks to market-linked financial products seeking higher returns, exposing them to market risks and potential financial losses during market volatility due to insufficient risk assessment and financial literacy.
Impact on Banking Sector
- The decline in financial savings presents challenges for banks in maintaining liquidity.
- Withdrawal of household savings increases banks' cost of funds due to reduced access to cheap sources.
- The parliamentary committee recommended addressing liquidity concerns, improving customer attraction, especially in underserved areas, and leveraging technology to enhance operational efficiency.
100% FDI in Insurance Sector
- The committee emphasized the need for safeguard measures against issues like profit repatriation, reduced decision-making power of domestic firms, and job security concerns due to automation and cost-cutting measures.
- Highlighted focus on high-margin policies and neglect of rural and financially weaker sections.
- Recommended addressing the downsides of FDI in the insurance sector "adequately and scrupulously".
RBI’s Integrated Ombudsman Scheme
- Complaints under the scheme increased at a compounded average growth rate of nearly 50% over the past two years, reaching approximately 934,000 in 2023-24.
- The committee suggested mechanisms for resolving grievances across multiple sectors.
- Recommended ensuring accounts opened under the scheme are active, not dormant or fraudulent, with rigorous verification, regular audits, and deactivation of inactive or fraudulent accounts.
