look news india
Digital Account: The Reserve Bank of India recently warned that the amount of cash deposits in banks has decreased and the flow of money into the stock market has increased. The rapid increase in investment in the stock market is affecting the money deposited in banks. A report has revealed that investors are also investing in the stock market by withdrawing FDs from banks. Due to which banks are increasing interest rates to attract customers, even though the RBI has not increased the repo rate.
Money in the digital account is shown as hot money
RBI has termed the money deposited in digital accounts as hot money. This means that this money can be withdrawn quickly, which can put the bank at risk. RBI took this decision last year to avoid a situation like the Silicon Valley Bank problem. In 2008, within a few hours of reports of the bad condition of Silicon Valley banks, people withdrew their money.
Run-off factor will be applied to the balance in the account
As per the new RBI rules, banks will have to put retail savings accounts that are easily withdrawable through net banking or mobile banking in the high risk category. This means that a run-off factor of 10% will be applied to fixed retail deposit accounts that avail internet and mobile banking services and 15% to fixed accounts with lesser amounts. The run-off factor is the portion of the deposit that is expected to be withdrawn first in case of any crisis.
The new rule will come into effect next year
The LCR rules issued by the RBI are aimed at ensuring that banks maintain adequate liquid assets to meet short-term liabilities during a financial crisis. High-quality liquid assets also include bonds. Which can be converted into cash easily and without any cost. The new LCR rules will come into effect from April 1, 2025.
Major changes in the banking system
According to the circular sent by RBI to the banks, banking has changed rapidly in the last few years. The increasing use of technology has made it easier to transfer and withdraw money instantly. But this has also increased the risk, which needs to be controlled in time. In view of some past incidents, the LCR framework for banks has been reviewed. Under the new rules, unsecured loans taken from small traders will also be treated like retail deposits, which means that the new runoff factors will apply to them as well.
Investment in mutual funds, SIP increased
Due to rising inflation and fixed interest rates on savings accounts, most people are turning to mutual funds and SIPs. Keeping this change in mind, Kotak and HDFC banks have expanded their branches and made their service better than before. Yes Bank has also increased the number of its branches to increase the number of depositors. Banks aim to promote customer transactions and services so that they can increase their deposit base.