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The Reserve Bank of India (RBI) should conceptualise and implement an ‘inflation-indexed deposit scheme’ for small depositors so that their earnings can be shielded against the scourge of inflation, according to the All India Bank Depositors Association (AIBDA).
Pointing out that the Centre is indirectly providing fiscal subsidy on tax-free bonds (in which high net worth individuals are the biggest investors), the association said there seems to be a complete reluctance to protect the interests of small depositors and senior citizens from the erosion caused by high inflation on their real earnings.
Over the last five years (2008-13), interest rates on term deposits of one- to five-year maturity have moved in the narrow band of 6.5-7 per cent to 9-9.5 per cent.
In a pre-policy consultative meeting with the RBI, AIBDA President Sunil S. Bhandare, said: “In substance, the depositors have experienced a negative rate of return (adjusted to the double digit annualised consumer price index-based inflation). This has not only eroded the value of depositors’ savings, but has also shaken their confidence in being able to earn a steady real interest income on their savings with banks.”
The AIBDA has submitted that the inflation-indexed deposit scheme should be available only for small depositors (up to the term deposit limit of Rs 5 lakh) and for specific category of senior citizens with term deposit limit up to Rs 15 lakh.
Increase deposit insurance cover
The association wants the deposit insurance cover to be raised to Rs 5 lakh from Rs 1 lakh now. A higher protective shield on bank deposits is conducive for enhancing the confidence of bank depositors.
It pointed out that after discounting for the inflation factor of the last two decades, the real value of insured deposit cover at 1993-94 prices is reduced to Rs 33,000 only.
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