The Hindu : National : Net collections under small savings schemes positive: Chidambaram

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Tuesday, May 08, 2007
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Net collections under small savings schemes positive: Chidambaram

K.V. Prasad

Small investors will be at the mercy of speculators: Dasgupta

P. Chidambaram

NEW DELHI: The Government on Monday asserted there was no evidence of any net outflow of deposits from the National Small Savings Fund (NSSF) into other savings instruments and that the Indian Infrastructure Financial Company Limited could be allowed access to such funds.

"Notwithstanding a more competitive market offering a wider menu of savings instruments, the net collections (i.e. gross collections minus withdrawals, which include redemptions and maturity in each financial year) under the Small Savings Schemes, still remain positive. There is no evidence of any net outflow of deposits from the Small Savings Schemes," Finance Minister P. Chidambaram told the Lok Sabha.

The Minister was responding to a calling attention notice of Gurudas Dasgupta (CPI) on the need to increase the rate of interest of small savings in post offices and bring it at par with the interest rates in banks to prevent the outflow of deposits and safeguard the interests of small savings depositors.

Mr. Dasgupta described the Minister's statement as an "innocently drafted statement, which cannot hide the intentions of the Government." He sought to know why the small savings scheme was being "killed silently."

The CPI leader said small investors would be at the mercy of speculators.

He said banks had garnered Rs.1,20,000 crore of corporate bulk deposits by offering 13 to 14 per cent interest.

Thrift habit

The Minister said small savings instruments were introduced to encourage thrift among small investors at a time when the banking and capital markets were relatively underdeveloped and the reach of the branches were limited. Today, he said there was a huge banking network with over 48,000 branches of public sector banks, over 13,000 branches of cooperative sector banks and 6,800 branches of private sector banks.

Wider menu

People now have a wider menu of savings in the form of post office, banks and mutual funds besides capital market. Mr. Chidambaram sought to know how the savings rate went up by 4 per cent in the United Progressive Alliance regime had its "policies degenerated," as charged by a member.

The Minister said currently banks were offering 9 per cent interest on deposits, including higher rates for senior citizens.

Gurudas Dasgupta

The Minster said he had taken a serious view of the higher rate bid by banks accessing bulk deposits in February and March and said he was trying to break this legacy and the Indian Banks Association was working on a code.

"Not shifting blame"

Mr. Chidambaram said collections under the NSSF constitute a significant portion of revenue for the States and any increase in its deposit rates would require a concomitant increase on the on-lending rate to the States.

He denied the Centre was shifting the blame to the State Governments and cited a report of a National Development Council Committee which recommended that States should be allowed to borrow from the NSSF at 7.5 per cent against the current 9.5 per cent.

Recommendation

The recommendation also said States should not be obliged to borrow more than 80 per cent of such collections and they should be allowed to pre-pay such loans.

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