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Industry & Economy - Small Savings


Small savings collections surge 23 pc

Harish Damodaran

New Delhi , Feb. 3

BANKS may be struggling as far as mobilising deposits go. But this is certainly not the case with the humble post office.

Gross collections under various small savings schemes administered by the post office during 2003-04 are expected to touch Rs 1,45,000 crore, according to the revised estimates provided in Tuesday's interim Budget. Not only is this nearly 23 per cent higher than the previous year's actual collections of Rs 1,18,117.65 crore, but even way above the Rs 1,25,000 crore figure that was budgeted for 2004-05.

The bulk of the increase has been in deposit schemes (monthly income account, post office time deposit, recurring deposit, savings account, etc.), where gross collections have risen from Rs 70,133.17 crore in 2002-03 to Rs 91,300 crore (revised estimate).

The growth has been less pronounced for savings certificates (National Savings Certificate and Kisan Vikas Patra) and the Public Provident Fund, with gross collections amounting to Rs 36,500 crore during the current fiscal (against Rs 33,189 crore in 2002-03) in the former and Rs 17,200 crore (Rs 14,794 crore) in the latter.

Compare this situation to what banks are experiencing. According to the Reserve Bank of India (RBI), aggregate deposits of scheduled commercial banks have grown by just Rs 1,56,539 crore during the current fiscal till January 9, which is lower than the Rs 1,60,478 crore over the corresponding period of 2002-03.

But what is more revealing is their break-up. The growth in demand deposits has actually been higher so far this year, at Rs 25,073 crore, against the previous fiscal's Rs 5,799 crore.

But demand deposits mainly pertain to current and savings bank accounts, which are maintained largely for crediting salaries and handling regular business transactions. To get a more accurate picture, one needs to look at time deposits.

And here the RBI data shows that time deposits with banks have grown by just Rs 1,31,466 crore during the current fiscal till October 3, as against Rs 1,54,679 crore over the same period last year.

Clearly, there seems to be some kind of `flight of savings' taking place from the banks to the post office, courtesy the more attractive interest rates being offered on the latter's time deposit schemes.

Effective from March 1, 2003, the interest on post office time deposits has been set at 6.25 per cent for one year, 6.50 per cent for two years, 7.25 per cent for three years and 7.50 per cent for five years.

Contrast this to the 5-5.50 per cent interest on 271-364 day deposits being offered by most banks, going up to 5.75-6 per cent for 3-5 years maturity.

The flight towards other schemes is less because the 8 per cent interest on PPF and monthly income accounts (the returns are higher if tax breaks are included) is somewhat offset by their long lock-in periods and illiquidity relative to bank deposits. Predictably, keeping in mind electoral considerations, the Finance Minister, Mr Jaswant Singh has tampered with the existing small savings rates.

No wonder then, during the coming fiscal, collections are budgeted to top Rs 1,65,000 crore!

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