Money & Banking

Small savings see robust inflows due to decline in bank deposit rates

K Ram Kumar Mumbai | Updated on February 21, 2020

Inflows into small savings schemes were up 15.43 per cent year-on-year (yoy) up to August-end 2019 vis-a-vis 9.85 per cent y-o-y growth in bank deposits.

Relatively higher interest rates, about 90 to 210 basis points (bps) more than bank term deposits, is leading to good inflows into these schemes.

The inflow also comes in the backdrop of retail investors burning their fingers due to their investments in non-convertible debentures (NCDs) of a few non-banking finance companies (NBFCs) turning sour in the last one-and-a-half years.

Small savings include post office saving bank (POSB) deposits, monthly income scheme (MIS), senior citizen savings scheme (SCSS) 2004, post office time deposits (POTD), post office recurring deposits (PORD), saving certificates, and public provident fund (PPF).

As per data in Reserve Bank of India’s latest monthly bulletin, the balance in small savings rose 15.43 per cent y-o-y to ₹9,75,153 crore as of August-end 2019, against ₹8,44,796 crore as of August-end 2018.

Specifically, small savings saw a 39 per cent jump in accretion at ₹11,199 crore in August 2019 against ₹8,033 crore in August 2018. That small savings are an attractive investment proposition is underscored by the fact that a POTD of one to three years’ duration fetches an interest rate of 6.9 per cent. A five-year POTD earns 7.70 per cent. In sharp contrast, State Bank of India pays 6 per cent interest on term deposits of one year and above duration. Banks usually pay 50 bps more interest to senior citizens.

SCSS and a five-year PORD fetch 8.60 per cent and 7.20 per cent (quarterly compounded), respectively. Investment in MIS can earn 7.6 per cent (payable monthly). A 15-year PPF and Kisan Vikas Patra (113 months duration) can fetch savers 7.9​ per cent (compounded yearly) and 7.60 per cent respectively.

A break-up of the small savings inflows in August 2019 shows that maximum accretion was in saving certificates (₹2,965 crore vs ₹789 crore in August 2018), followed by ₹2,933 crore in POTD (₹1,983 crore in August 2018), ₹1,459 crore in SCSS (₹1,120 crore), ₹1,133 crore in MIS (₹1,008 crore), ₹1,460 crore in POSB deposits (₹2,021 crore), and ₹302 crore in PPF (₹181 crore).

Published on February 21, 2020

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