Finance ministry warns on risks of household savings shift

The finance ministry has raised concerns in Parliament about the risks households face when moving their money from banks to market-linked financial products. This trend is driven by the desire for higher returns but could lead to financial losses, especially during market downturns, due to a lack of understanding of risks. In its report, the Department of Financial Services highlighted that as households withdraw savings from banks, it impacts the banks' liquidity. This shift could increase the cost of funds for banks, making it harder for them to operate effectively. The committee has urged banks to enhance customer engagement, focus on underserved areas, and use technology to address these issues. Regarding foreign direct investment (FDI) in the insurance sector, the committee emphasized the need for protective measures. They expressed concerns about profit repatriation, which could lead to fewer reinvestments in India. There are also worries about reduced influence of domestic firms and job security due to potential automation. The number of complaints filed under the Reserve Bank of India's Integrated Ombudsman Scheme has surged, growing at nearly 50% over two years. The committee has called for better systems to resolve grievances that span multiple sectors to improve customer service. Lastly, the committee discussed the importance of keeping Jan Dhan accounts active. They recommended strict verification and audits of these accounts to ensure they are not dormant or fraudulent. Discrepancies should be investigated, and inactive or fraudulent accounts should be deactivated.