The Hindu Business Line : Senior citizens scheme may dent banks' term deposits

THE move to route senior citizens deposit schemes, currently operational through post offices, through banks could well mark the cannibalisation of the banks' term deposit portfolio, according to senior bankers.

"The new scheme, once it is extended through banks, could offer high returns akin to those of post office deposit schemes as well as better and more efficient services. It will be a win-win situation for the senior citizens," Mr T.R. Madhavan, Managing Director of Dhanalakshmi Bank, said. The banks will be a channelising agency, which will mobilise the funds from the public and route it to the Government kitty. The Government will have to generate nine per cent returns on these deposits.

Term deposits held with commercial banks in the country grew to Rs 12,79,394 crore as on March 2004 as against a mere Rs 71,387 crore of postal deposits. Despite the better returns offered, postal deposits constituted just six per cent of term deposits of commercial banks. But the bankers see a more potent threat in the senior citizens schemes being extended through bank counters..

"There is a comfort level between the conveniences offered and returns sacrificed. When that comfort level is breached, , there will be a distinct shift from convenience to better returns. This has been the case of post office deposits growing at the cost of bank's term deposits," Mr K.P. Padmakumar, Chairman of Federal Bank, said.

While conceding that the senior citizens deserved better returns, the bankers were quick to point out the scheme has the potential to be misused. As against an upper limit of Rs 6 lakh for a joint account under the monthly income scheme of the postal department, the senior citizens have an upper limit of Rs 15 lakh per account. This, according to some bankers, is an invitation to the upper middle class to hold their bank deposits in the names of the senior citizens of the family, enjoy higher returns, better comfort and greater customer service.

More Stories on : Trends | Fixed Deposits

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Bank loan to buy Ezeebee

Cholamandalam MS to be cautious on motor portfolio

Bond market awaits Credit Policy for direction

Yes Bank plans risk tools for SMEs

Corpn Bank drive for more SB a/cs

Vijaya Bank Kukatpally branch

Mid-term policy review — To hike or not to hike

SBIEA protests transfers

Insurance officers' plea

Senior citizens scheme may dent banks' term deposits