INDIA: Banks Give Govt a Run for Money on Elderly Savings

MUMBAI (The Economic Times), August 16, 2006: The senior citizens saving scheme offered by the government is now facing some serious competition from banks. State-owned Allahabad Bank is the latest to price its 5-year term deposit scheme at 9% - the same rate as that of the government scheme. Recently, IDBI Bank had launched IDBI Suvidha Tax-Saving Fixed Deposit, where it offered 9% to senior citizens. Where the banks may score is with respect to the tax benefit. The senior citizens saving scheme, which also has a 5-year tenure, does not offer any tax sop while the one from banks will enable any senior citizen to deduct investments up to Rs 1 lakh from his taxable income like other savings instruments notified under Sec 80C of the Income Tax Act. Banks are offering the carrot of a higher rate of 9% to mop up funds to finance credit which has been growing at over 30% for the banking industry. While most banks offer a rate which is 0.50% higher than the prevailing rate to senior citizens, Allahabad Bank has upped the offer to 1% for investors in this segment. The bank has launched two deposit schemes - with tenures of 7 and 5 years. Both offer an interest rate of 8%. However, the 7-year scheme falls into ordinary deposit category with a provision of premature withdrawal during its lifetime, in the 5-year scheme, the money invested has to be locked in for the full tenure. Similarly, Indian Bank has an offering for the customer to double the deposited money in 100 months (8 years and 4 months). However, once the money is deposited, the customer is barred from making any premature withdrawals. The effective rate of interest on the scheme will be 12.03%. The depositor can, however, avail of a loan against the deposit. Both Allahabad Bank and Indian Bank will float their deposit schemes on August 16. The launch of these savings products comes at a time when several banks have been slugging it out in a competitive market to raise deposits, sensing a further rise in interest rates. Banks such as ICICI Bank, IndusInd Bank, Yes Bank and Kotak Mahindra Bank are offering an interest rate of 8% on their deposit schemes where the tenure ranges 270-390 days. Besides, all these banks have an offer rate which is half a percent or 50 basis points higher for senior citizens. The higher rate offered for deposits comes in the backdrop of banking sector resorting to a hike in lending rates. Meanwhile, Dena Bank and Union Bank of India have raised their lending rates in the past week following approval from their board members. While Dena Bank’s new lending rates are 11.75%, Union Bank will charge 11.5%. The board of Allahabad Bank which too met last week ratified the bank’s proposal to up lending rates to 11.5%. Copyright ©2006 Times Internet Limited.