December 13, 2009

INDIA: Post office deposits surge on interest, safety scores

. MUMBAI, Maharashtra / The Hindu Business Line / Money & Banking / December 12, 2009 (One crore = 10 million) By K. Ram Kumar The ‘aam aadmi' (the common man) is setting store by Post Office deposits. At a time when banks are cutting deposit rates to protect their margins, the prospect of rock steady interest rates coupled with assurance of safety of the principal is leading the common man to park a chunk of his surplus as deposits with the humble neighbourhood post office. In the first half of the current financial year (April to September 2009), total investments in various postal deposit schemes surged by a robust 32 per cent at Rs 79,237 crore. In the corresponding period last year, deposits grew 21 per cent, by Rs 56,347 crore. Aggregate deposits of scheduled commercial banks grew 7.5 per cent (Rs 2,85,897 crore) in the April 1 to September 25, 2009 period, according to RBI data. In the corresponding period last year, the growth was 7.6 per cent, or Rs 2,42,388 crore. Postal deposit schemes have seen healthy inflows as banks, faced with poor credit pick up, aggressively resorted to deposit rate cuts in the last few months in order to bring down their cost of funds. Higher interest rates, income tax benefits, loan facilities and bonus on maturity on some of the deposit schemes are the main reasons why investors are attracted to Postal Deposit schemes. In November 2008, banks were paying interest in the range of 8.75-10.50 per cent on term deposits compared with 6-7.50 per cent now. India Post, however, did not tweak interest rates on any of the postal deposit schemes. It was the (PO) monthly income scheme which attracted the highest inflows. This scheme has a maturity period of six years and earns 8 per cent interest. Inflows in the reporting half year doubled to Rs 22,299 crore (Rs 11,422 crore in the corresponding period last year). The PO savings accounts (interest rate: 3.5 per cent) saw nearly 1.5 times more accumulation in the first half of 2009-10 at Rs 31,832 crore (Rs 23,884 crore). sThe PO time deposit scheme (interest rate ranges between 6.25 per cent and 7.50 per cent depending on the maturity period) and the five-year PO recurring deposit scheme (7.5 per cent interest rate compounded quarterly) reported accretions of Rs 7,799 crore (Rs 6,613 crore) and Rs 14,265 crore (Rs 13,663 crore) respectively. In terms of growth, the senior citizens savings scheme fared the best, with golden-agers investing Rs 3,042 crore, nearly four times more than last year (Rs 765 crore). This scheme has a maturity period of five years and fetches an attractive 9 per cent interest a year. The Rs 79,237-crore inflows into various postal deposit schemes accounted for 84 per cent of the Postal Department's total receipts of Rs 94,237 crore in the first half of 2009-10. [rc] Copyright © 2009, The Hindu Business Line.