RBI COMMITTEE FOR SIMPLER FINANCIAL PRODUCTS

MUMBAI: A Reserve Bank of India constituted panel on household finances has recommended that households be given a suite of simple, customised, financial products with a default opt-out structure to further their participation in financial markets.

The panel, headed by Tarun Rama dorai, professor of financial economics at the University of Oxford, also made sector specific recommendations, providing integrated financial advice for households and leveraging technology to cut transaction costs.

For instance in the credit markets, the panel suggested that banks should quote loans to customers using RBI’s repo rate (repurchase rate, its key policy rate) rather than based on marginal cost of funds-based lending rate (MCLR) to help comparisons. It further recommended that all banks use the same period for resetting floating loan rates, which should be one month.

It has suggested that households be allowed the choice to shop for the best annuity plans and investment norms for annuity funds to be relaxed. In insurance, it has proposed simplified low-cost home and contents insurance and travel insurance.

Such simplified products also tie in with the panel’s advice of ensuring an essential minimum financial kit for households when they access any one and finish KYC compliance. This means that when households open say, a no-frills banking account, they will get access to simple term insurance, basic health insurance, micro unsecured credit, simple collaterised loans, flexible fixed deposit accounts etc.

The panel has proposed an uniform set of standards and definition for consumer protection.