Few days back the Reserve Bank of India (RBI) raised its key policy rates as a result private sector banks are in the process of gearing up for a deposit rate hike.
Private banking sources said, most likely the private banks in the coming months will be hiking deposit rates before switching to base rate system for lending.
Moreover by raising deposit rates these banks will be able to mobilize their funds in more efficiently to meet the credit demands in the system, burdened with liquidity crunch.
Ashish Parthasarathy, treasurer at HDFC Bank pointed out, “After the recent hike, RBI is expected to increase both repo and reverse repo once again by 25-50 basis points in the next monetary policy. Banks are expected to raise their deposit rates soon.” He added, the hike in deposit rates will help the banks in achieving their deposit growth target.
In the past few months, the banks have witnessed decline in the growth of deposits. For the fortnight ended June 18 banks deposits rose up to 13.92%, as against 14.34% y-o-y in the previous fortnight.
PC John, executive director, Federal Bank said, “Our asset liability committee will review the interest rate situation in its July meeting. We are also keeping a close watch on what other private banks are doing to stay competitive”.
RVS Sridhar, president & head markets (treasury), Axis Bank, said, “Banks will increase deposit rates depending on their fund requirements for credit offtake. The system is currently going through a liquidity crunch.”
Friday, July 9, 2010
Thursday, July 8, 2010
Benefits of Senior Citizen Savings Scheme
In the second half of 2004, the five-year Senior Citizen Savings Scheme (SCSS), was launched. This scheme became a big hit as it offered higher returns.
Now, most of the investor’s schemes who had invested in the initial time period will be maturing in the coming days. Thus it becomes important to relook at these schemes before thinking of reinvesting in them.
On this scheme the rate of interest offered is 9%, which is quite high, in comparison to the existing rates. This return is paid to the investor every quarter. As for the high rate of interest, there is no other scheme for senior citizens offering such high interest rate.
For instance, on the bank fixed deposit for long tenure the interest rate is offered in the range of 7-7.5%. Therefore, it will be better to invest in the same scheme.
In this scheme the initial investment is done for a period of five years, thereafter it can be extended only for three year. And for extension a form has to be filled in the respective bank or post office where the investment has been done.
The other benefits of the scheme are – along with high returns and safety of money, there is a tax benefit. The investment of up to Rs 1 lakh is eligible for a deduction under section 80C of the Income Tax Act.
But in the recent revised Direct Tax Code it has not been clarified that, this benefit will continue or not. Investors should contact their respective bank or post office to get clarification on this, in order to continue getting the tax advantage.
The senior citizens who are of 65 years and above should invest the maximum possible amount in this scheme, because they come in the highest tax bracket, and if the returns from this instrument do not exceed their basic exemption limit of Rs 2.4 lakh, they can earn tax-free returns.
This scheme has one major negative aspect. It lacks liquidity. In this scheme investors cannot withdraw, when they wish to. In old age, people might need sudden influx of cash for medical or other needs, but they cannot withdraw before maturity of the scheme. Moreover, in this scheme transfer facility is not available.
There are few schemes that offer protection as well as high returns for individuals. So till the initial Rs 15 lakh limit per person is utilized by the individual, it is a good choice.
But, for people who have a higher amount for investment, this scheme is not adequate from investment point of view as well as for generating higher returns.
The other debt options have some point which makes a choice difficult for the senior citizen. For example the monthly income scheme of the post office has a maximum investment limit of Rs 4.5 lakh for a single individual.
In monthly income plan of a mutual fund there is no guarantee of any return. And, if the conditions are not favorable as are now, then, there might not even be any payout. Other bonds and debentures will not ensure a regular cash flow that meets a senior citizen's needs.
In comparison to these alternatives, SCSS is best to earn regular return.
Now, most of the investor’s schemes who had invested in the initial time period will be maturing in the coming days. Thus it becomes important to relook at these schemes before thinking of reinvesting in them.
On this scheme the rate of interest offered is 9%, which is quite high, in comparison to the existing rates. This return is paid to the investor every quarter. As for the high rate of interest, there is no other scheme for senior citizens offering such high interest rate.
For instance, on the bank fixed deposit for long tenure the interest rate is offered in the range of 7-7.5%. Therefore, it will be better to invest in the same scheme.
In this scheme the initial investment is done for a period of five years, thereafter it can be extended only for three year. And for extension a form has to be filled in the respective bank or post office where the investment has been done.
The other benefits of the scheme are – along with high returns and safety of money, there is a tax benefit. The investment of up to Rs 1 lakh is eligible for a deduction under section 80C of the Income Tax Act.
But in the recent revised Direct Tax Code it has not been clarified that, this benefit will continue or not. Investors should contact their respective bank or post office to get clarification on this, in order to continue getting the tax advantage.
The senior citizens who are of 65 years and above should invest the maximum possible amount in this scheme, because they come in the highest tax bracket, and if the returns from this instrument do not exceed their basic exemption limit of Rs 2.4 lakh, they can earn tax-free returns.
This scheme has one major negative aspect. It lacks liquidity. In this scheme investors cannot withdraw, when they wish to. In old age, people might need sudden influx of cash for medical or other needs, but they cannot withdraw before maturity of the scheme. Moreover, in this scheme transfer facility is not available.
There are few schemes that offer protection as well as high returns for individuals. So till the initial Rs 15 lakh limit per person is utilized by the individual, it is a good choice.
But, for people who have a higher amount for investment, this scheme is not adequate from investment point of view as well as for generating higher returns.
The other debt options have some point which makes a choice difficult for the senior citizen. For example the monthly income scheme of the post office has a maximum investment limit of Rs 4.5 lakh for a single individual.
In monthly income plan of a mutual fund there is no guarantee of any return. And, if the conditions are not favorable as are now, then, there might not even be any payout. Other bonds and debentures will not ensure a regular cash flow that meets a senior citizen's needs.
In comparison to these alternatives, SCSS is best to earn regular return.
Monday, July 5, 2010
Deposits likely to rise due to rise in repo rate
The Reserve Bank of India (RBI) has raised its key policy rates it is expected that it might bring cheers to depositors.
It is believed the increase in the repo rate is likely to raise corporate bulk deposit rates. In June bulk deposit rates had risen as much as 125 basis points, better than retail deposit rates, but it was temporary because of outflow of money from the system due to advance tax and 3G auction payments.
According to bankers due to rise in repo rate, increase in bulk deposit rates will be more permanent. T Y Prabhu, chairman and managing director of Oriental Bank of Commerce pointed out, “As a result, both short-term borrowing and short-term lending will become expensive.”
According to M D Mallya, chairman and managing director of Bank of Baroda hike in repo rates by RBI might not prompt any immediate increase in lending rates. “AN Increase in deposit rates may be a possibility”.
On the other hand SBI Chairman O P Bhatt had said that bank might think on raising deposit rates after the first quarter review of the monetary policy on July 27. The RBI had clarified that it want rise in interest rates to tackle rising prices and to give better returns to savers. RBI Deputy Governor K C Chakrabarty said on Friday, “We have to give better return to savers. The credit growth is higher, inflation is picking up, and so we have to curtail credit demand.”
According to RBI report between April 1 and June 18, banks were able to raise Rs 24,715 crore deposits which was below than the comparable period of last year, which was Rs 1, 31, 354 crore.
By June end banks deposit growth was 13.9 per cent which is much less than the RBI’s projected 18% growth, in spite of deposit growth in 12 months.
It is believed the increase in the repo rate is likely to raise corporate bulk deposit rates. In June bulk deposit rates had risen as much as 125 basis points, better than retail deposit rates, but it was temporary because of outflow of money from the system due to advance tax and 3G auction payments.
According to bankers due to rise in repo rate, increase in bulk deposit rates will be more permanent. T Y Prabhu, chairman and managing director of Oriental Bank of Commerce pointed out, “As a result, both short-term borrowing and short-term lending will become expensive.”
According to M D Mallya, chairman and managing director of Bank of Baroda hike in repo rates by RBI might not prompt any immediate increase in lending rates. “AN Increase in deposit rates may be a possibility”.
On the other hand SBI Chairman O P Bhatt had said that bank might think on raising deposit rates after the first quarter review of the monetary policy on July 27. The RBI had clarified that it want rise in interest rates to tackle rising prices and to give better returns to savers. RBI Deputy Governor K C Chakrabarty said on Friday, “We have to give better return to savers. The credit growth is higher, inflation is picking up, and so we have to curtail credit demand.”
According to RBI report between April 1 and June 18, banks were able to raise Rs 24,715 crore deposits which was below than the comparable period of last year, which was Rs 1, 31, 354 crore.
By June end banks deposit growth was 13.9 per cent which is much less than the RBI’s projected 18% growth, in spite of deposit growth in 12 months.
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