Government Savings schemes loosing their sheen
By Neelima Shankar
Aug 31, 2012
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Government sponsored small savings schemes which were once popular with the masses seem to be loosing their sheen. During the first quarter of the year, these schemes saw more people withdrawing their money for greener pastures, which resulted in net collections going negative.

Net collections is a difference between deposits and withdrawals. Prime reason for the deposits going down is the low interest rates on such schemes. Despite the revision, the interest rates on these scheme is 40 basis points lower than the PSB savings bank accounts.

Also senior citizen savings scheme of Indian Post offers lower returns than returns from fixed deposits (senior citizen) of many banks. Raising the interest rates would be a tough call since it would effect the borrowings by the states, said government officials.

Experts suggest that other important reason for reduced net collection in such schemes is reduction in the commission for agents and outflow of savings from Kisan Vikas Patra (KVP).

The government is working to compile a data from all post offices regarding KVP to get a clearer picture on the issue. Also attempts have been made to make the schemes look more attractive by bringing the rates to the level of G-secs with a difference of 0.25%. But tenure of National Savings Certificate (NSC) and Monthly Income Scheme have been brought down from 6 years to 5 years.

Maximum limit for contribution towards Public Provident Fund (PPF) has been raised from Rs. 70,000 to Rs.100,000. The government has also introduced a 10 year NSC to attract long term deposits. However, it may face tough competition from 10 year fixed deposits, which unlike 10 year NSC also offers tax benefits.

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