Finance Ministry Warns of Dangers in Switching Savings to Market-Linked Products
Households Face Market Risks
The Finance Ministry has issued a warning about the risks of transferring bank deposits to market-linked financial products. This change can expose households to major risks, potentially causing significant financial losses during market volatility. This is especially true for those with limited risk assessment skills and financial knowledge.
Challenges for Banks’ Liquidity Management
- Decreased savings can create difficulties in managing banks’ liquidity
- Banks lose access to affordable funding sources when households withdraw savings
- This raises banks’ funding costs
Committee Recommendations
- Act proactively to tackle liquidity problems
- Enhance customer engagement in underserved areas
- Embrace technology to boost operational efficiency
Concerns over Full Foreign Direct Investment in Insurance
The committee highlighted the need for safeguards to address concerns related to the budget’s proposal for full foreign direct investment (FDI) in insurance. These concerns include handling profit repatriation to foreign countries, preserving domestic companies’ decision-making power, and protecting employment amid potential automation.
Challenges in India’s Insurance Sector
- Concentrating on profitable policies
- Ignoring rural areas and economically disadvantaged groups
Increase in Complaints under RBI’s Integrated Ombudsman Scheme
The committee noted a substantial increase in complaints under the Reserve Bank of India’s Integrated Ombudsman Scheme, with a compound growth of nearly 50% over two years, reaching around 934,000 in 2023-24. They suggested setting up systems to resolve grievances across various sectors.
Keeping Active Jan Dhan Accounts
- Implement rigorous verification processes
- Regularly review account activities
- “Discrepancies should be thoroughly investigated and accounts that are inactive for extended periods or found to be fraudulent should be deactivated,” it advised.
