HAVE SMALL Saving Schemes lost their attraction among investors who wanted to park their funds in them to save some part income and also to get tax benefits? If official figures are any indication, for the first time in the past several years, gross small savings collections in post offices and banks are showing a declining trend.
During April-November 2006, gross small savings collections registered 20 per cent decline at Rs 3061.04 crore as compared to Rs 3806.87 crore collected during the same period in 2005-06.
During fiscal year 2005-06 the State Government collected Rs 6,381 crore under these schemes but during the current fiscal (2006-07) there is a remote possibility that Government managed to match previous year’s collections.
Market sources said investors’ preference for alternative investment avenues could have brought about the decline. It was also pointed out that the sensitivity of small savings mobilisation to the interest rate offered on competing instruments like bank deposits was quite high. Apart from this State Government has also discontinued some incentive schemes like the Bhagyodya Yojana offered by it to depositors and agents.
State Government sources admitted that servicing these schemes was quite high which forced it to discontinue various incentives.
Meanwhile, banking industry sources highlighted that in the current fiscal banks have come up with special 80C deduction (up to Rs 1 lakh) based deposit schemes to attract long-term deposits.
“The tax exemption under Section 80C coupled with increase in the interest rate of certain deposits have made an impact in terms of increased flow of deposits into banks this fiscal,” a public sector bank official said.
He added there was a strong possibility of certain amount of small savings in post offices being converted into fixed deposits in banks. Also, lower interest differential between small savings and bank deposits could have led customers to the banking system, since the comfort of dealing with banks is better than with post offices.
Another reason for the drop in small savings collections could be increasing inflation concerns in many households. Faced with sharp increase in primary products prices, many households are looking to high-risk instruments for better returns on their investments.
Small Savings and Lotteries Director Sudha Choudhary admitted for the first time in several years collections under these schemes were declining.
Talking to Hindustan Times she said many factors including discontinuation of the facility to park institutional saving deposits in these schemes, benefit of IT exceptions
also available in banks deposits in some schemes, discontinuation of 10 per cent bonus facility by the Government of India and discontinuation of incentives officered by the State Government contributed in aforesaid decline.
With the exception of Sagar , collection in all divisions of the State including Bhopal, Hoshangabad, Indore, Ujjain, Rewa, Jabalpur, Gwalior and Chambal showed significant decrease.
Against collection of Rs 247.26 crore during November 2005, collection of merely Rs 119.78 crore was undertaken till November 2006.
About 53 per cent of target was achieved till November 2005 but this year only 32 per cent were collected in the same period, which shows poor performance of these schemes.