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.