Risks of Shifting Savings to Market-Linked Instruments

The Finance Ministry has highlighted the dangers associated with households moving their savings from traditional banks to market-linked financial products in search of higher returns. This trend could expose families to significant market risks, potentially leading to financial losses during periods of market volatility, especially due to limited risk assessment capabilities and financial awareness.

The Department of Financial Services pointed out that this shift not only poses risks to individual savers but also creates challenges for banks' liquidity management, as banks lose access to low-cost funding sources, thereby increasing their funding expenses.

Parliamentary Recommendations for Banking Sector

In response to these challenges, the parliamentary standing committee has recommended several measures. These include pre-emptive actions to address liquidity issues, enhancing customer engagement in underserved regions, and adopting technological solutions to improve operational efficiency. These steps aim to help banks mitigate the effects of declining CASA (current account savings account) ratios.

Concerns Over FDI in Insurance Sector

The committee also raised concerns regarding the budget's proposal for complete foreign direct investment (FDI) in the insurance sector. It emphasized the need for protective measures to manage profit repatriation, preserve the decision-making authority of domestic companies, and protect employment amidst potential automation. Additionally, the committee warned against the risk of focusing solely on profitable policies at the expense of rural areas and economically disadvantaged sections.

Rising Complaints and the Need for Effective Grievance Redressal

With a significant increase in complaints under the Reserve Bank of India's Integrated Ombudsman Scheme, the committee stressed the importance of establishing systems to resolve grievances across various sectors efficiently. It also highlighted the need for maintaining active Jan Dhan accounts and implementing thorough verification processes to prevent dormancy or fraud.