NEW
DELHI/ CHENNAI: The Employees Provident Fund Organization on Tuesday proposed
raising the interest rate to 8.8% this year, compared to 8.75% in 2014-15.
While
the government announced a 25 basis point reduction in rates on post office
deposits and Kisan Vikas Patras (KVP) from April — indicating its preference
for long-term savings while seeking lower bank fixed deposit and lending rates
in the next financial year.
The
government has left interest rates on the popular public provident fund, National
Savings Certificate, Sukanya Samridhi Yojana, Senior Citizen Savings Scheme and
the Monthly Income Scheme unchanged for the time being, while promising
quarterly reset in rates from next year.
Although
the notification of the new small savings scheme rates was anticipated, the
decision of EPFO's board of trustees came as a surprise as it deviated from the
finance panel's recommendation to pay 8.95% interest during the current
financial year, a move that provoked protests from trade union representatives.
Labour minister Bandaru Dattatreya, who heads the EPFO's central board of
trustees, suggested that rate decided at Tuesday's meeting was interim and
could be revised. He also pointed to the falling rate regime, indicating that
the decision to settle for a lower payout was done at the behest of the finance
ministry, which has to notify the rates.
"The
chairman (Dattatreya) said the market is going down and hence higher rate
cannot be recommended now... The minister said the rate is interim, he is changing
the system of deciding on the interest rate," said Prabhakar J Banasure, a
Bharatiya Mazdoor Sangh nominee on the EPFO board. He said even with 8.95%
interest rate, EPFO would have been left with a surplus of Rs 91 crore,
compared to Rs 673 crore at 8.8%.
"The
rate is based on an estimate of the amount available. Once the books are
audited, a factual report will be submitted before the ministry and the
possibility of increasing the rate will be seriously considered,"
Dattatreya said.
The
government, however, didn't hide its bias for lower deposit and lending rates
while announcing a reduction in small savings rates. "The small savings
interest rates are perceived to limit the banking sector's ability to lower
deposit rates in response to the monetary policy of the Reserve Bank of India.
In the context of easing the transmission of the lower interest rates in the
economy, the government also has to take a comprehensive view on the social
goals of certain National Small Savings Schemes," the finance ministry
said in a statement.
Over
the past few years, banks and RBI have repeatedly pointed out that higher rates
on small savings schemes resulted in individual preferring them over bank
deposits. As a result, they argued, banks have not been unable to pass on the
entire benefit of the rate reduction by RBI. Bank cite the stickiness in
deposit rates for their inability to lower lending rates further. While the
central bank has reduced key policy rates by 125 basis points (100 basis pints
equal a percentage point), banks have cut rates by up 70 basis points.
To
get banks to offer deeper cuts at least in the next financial year, the
government said that the 25 basis point spread that one-, two- and three-year
term deposits, KVPs and 5-year recurring deposits enjoy over government bonds
with comparable maturity will reduce from April. This will "make them
closer in interest rates to the similar instruments of the banking sector. This
is expected to help the economy move to a lower overall interest rate regime
eventually and thereby help all, particularly low-income and salaried
classes", the government said.
Source:http://timesofindia.indiatimes.com/
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