The Hindu : Tamil Nadu / Chennai News : State witnessing severe erosion of collections under savings schemes

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Sunday, Feb 15, 2009
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Tamil Nadu

Tamil Nadu - Chennai

State witnessing severe erosion of collections under savings schemes

T. Ramakrishnan

However, declining bank interest rates may trigger a revival

CHENNAI: The trend of rising interest rates for bank deposits during 2006-2008 and a couple of other factors caused severe erosion to the base of net collections made under small savings schemes in the State, according to a study.

A perusal of data of net deposits mobilised by commercial banks and the Tamil Nadu Power Finance and Infrastructure Development Corporation (Powerfin), a non-banking finance company under the control of State Government, and those of net collections achieved under the small savings schemes reveals that the shift from the small savings schemes, once a great attraction for the middle class, began during 2005-2006.

[Commercial banks include State Bank of India and its associate banks, other public sector banks, private banks, foreign banks and regional rural banks. Deposits, in the bank’s parlance include term deposits, savings and current accounts.]

Apart from the fact that the bank rates began to rise in 2006, the Union government, in February 2006, announced the withdrawal of 10 per cent bonus for the post office monthly income deposit scheme. Though the government later decided to introduce five per cent bonus in December 2007, this did not arrest the trend of retail investors moving away. Besides, the higher rate of interest offered by Powerfin than nationalised banks lured a section of the investors. The Union Budget for 2006-2007 had provided income tax exemption to fixed deposits for not less than five years made in scheduled banks. As the personal income levels were generally on the rise during this period, people began to invest more in real estate.

An analysis of the State government’s documents on registration of properties shows that on an average, 14 lakh documents were registered annually during 1994-2004.

Thereafter, there was a perceptible increase. For the next three years, the figure was in the range of 17.6 lakh to 24.9 lakh. In 2007-2008, 26.9 lakh documents were registered. The growth rate is said to be moderating now.

All these developments contributed to a negative growth in net collections of small savings schemes. Since 2007-2008, the withdrawals exceeded the gross collections.

A senior bank official says with the declining interest rates offered by the banks, there is an expectation in the banking circle that retail investors may favour the small savings schemes again.

However, with the global crisis in the financial sector, there is a renewed confidence being reposed by investors in public sector banks.

An official of Powerfin explains there were fewer mobilisations of net deposits in 2006-2007 because the rate of interest offered by the organisation was less than that of the small savings schemes. Also, the investors had preferred mutual fund schemes more as the capital market was booming.

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