The finance ministry has asked government banks to reduce the fixed deposit (FD) rate offered to senior citizens to reduce cost of funds. At present, most public sector banks offer 50 basis points more to senior citizens than what they offer to others. Some private sector banks, like ICICI Bank, offer 75 basis points more to seniors. The finance ministry has demanded an action-taken report from banks on how they have progressed on this front..............
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Those who are in the know of things will, in the coming days make studied observations on this subject. But, the motive of the finance ministry being betrayed in the way in which the instructions have been issued only to Public Sector Bank, calls for an immediate response. Propriety demands that such instructions with industry and social implications should have been issued through Reserve Bank of India after due deliberations. This does not appear to be the case here.
Those who are in the North Block now must be young and unaware of how interest rates evolved to the present stage. At the time of retirement in the early 1990's the retirement benefits deposited in banks or Post Office gave a return of around 12% p.a. Now the return has come down by 20 to 30% and inflation had its impact on cost of living. The 50 to 100 basis point additional interest on deposits of senior citizens, allowed to be paid by banks by Reserve Bank of India, has this background. A Senior Citizens Savings Scheme with higher than market-related interest rate and tax benefits also was introduced more than a decade back. The pressures on senior citizen’s personal budget have only increased on account of negative returns on his savings and escalation in costs owing to inflation.
Finance Ministry's present advice will have no impact on PSB profitability as the deposits already contracted may not get affected and senior citizens will move their deposits to other institutions/avenues giving better return, which could be unsafe making his plight worse in the coming days.
M G Warrier, Thiruvananthapuram
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