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Richa Mishra
K.R. Srivats

New Delhi , Sept. 3

THE Finance Ministry has virtually closed the Special Deposit Scheme (SDS) window for the Life Insurance Corporation of India (LIC), General Insurance Corporation (GIC) and its subsidiaries and the Unit Trust of India (UTI).

The Finance Ministry has asked these institutions to withdraw their existing contributions in SDS by September 30 this year. It has also made it clear that the assured return of 8 per cent per annum that it has been paying on their funds parked in the scheme would not be available to them from October 1, 2004.

This move of the Finance Ministry could bring down the Government's interest liability under the scheme. A large portion of the monies invested in the SDS come from provident fund investments made by the Employees Provident Fund Organisation (EPFO).

Official sources said that these institutions have been informed that any of their subscribed amount in the scheme would not be eligible for 8 per cent per annum interest from October 1. These institutions have in aggregate parked close to Rs 3,000-Rs 3,500 crore in the scheme, which they would now be required to withdraw before September 30.

By denying these institutions an interest rate return of 8 per cent, which is now available to them, the Finance Ministry has ensured that their participation in the SDS would not be worthwhile from October 1, 2004.

Officials said that the move to ask the institutions to withdraw their investments from the scheme might ultimately turn out to be a blessing in disguise for them.

"This move of the Finance Ministry is only going to benefit the depositors — LIC, GIC and UTI — as they will gain flexibility in investing these funds in other investment vehicles that may yield better returns.

The Government is not looking towards these institutions for funds to be parked in SDS," sources said.

The SDS, which was launched in 1975, was intended to provide higher returns for non-government funds, gratuity funds and superannuation funds.

It also acted as a vehicle for LIC, GIC and UTI to park their surplus funds. With rising inflation, the Finance Ministry has recently been under pressure to increase the interest rate on deposits made in SDS.

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