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Special schemes for pensioners necessary — RBI Governor

By C. R. L. Narasimhan

CHENNAI NOV. 5. For those who are retiring or just retired there must be special windows: age related savings schemes, for example. "In principle I would agree that their expectations of income are different from what the market logic demands.'' Y. V. Reddy, was answering a question from The Hindu shortly after reviewing the monetary policy on November 3 in Mumbai. In developed countries, the Reserve Bank of India Governor pointed that there are institutional arrangements in aid of the saver over his lifetime. Not so in India. Everyone here has been looking at terminal benefits, how to live on them — a case of expectations. In the last five or six years that logic has changed (due to the sharp fall in the interest rates). The new logic cannot be employed retrospectively, he added.

The question of having separate savings schemes/investment avenues that would meet the requirements of the pensioners has been topical ever since the interest rates in the country started coming down. The question has a contextual significance. The RBI's influence over the interest rate structure as well as over the financial sector is easily understood. The immediate direction of the interest rates, lending and deposits, is the subject of speculation before and after any policy announcement. This time too has been no exception. Reddy's review of monetary policy did not signal any change in the interest rate structure. Neither the Bank Rate nor the CRR (cash reserve ratio) or the repo rate was changed.

Some public sector banks, however, have started lowering their lending rates. Their deposit rates, already very low, might move downwards. How do these impact on pensioners and those who are about to retire, for whom there is no other means of livelihood other than interest income from bank deposits? In the absence of any other safe investment avenues, this category has become even more vulnerable.

By many yardsticks, the return on bank deposits (for certain tenures) has as already become negative, as it does not even cover inflation. Part of a much bigger debate over the pros and cons of a declining interest policy, the issue of safeguarding the interests of a vulnerable section of the society has remained topical. Whereas the benefits of interest rate declines have gone to those who have availed of, say a housing loan, the depositors have had a raw deal. The previous RBI Governor Dr. Bimal Jalan said it was transitional problem, as we move down from a high interest rate structure.

Dr. Reddy has had a significant say in the ongoing debate over the interest rate structure in the country. Significantly, in April 2001 he headed a committee that went into the gamut of administered interest rates — the interest paid on the schemes of the National Savings Organisation, PPF and so on. Those had continued to remain high long after the decontrolled interest rates of banks started tumbling down. The committee's main recommendation is to benchmark these rates against yields on government securities. The interest rates on some of these were brought down but they are still above what banks pay their depositors for shorter tenure. However, for many in this country they constitute the only form of social security.

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