Where has all the savings money gone this year with the small savings growth rate having already plateaued in the first seven months of the current financial year?
A significant chunk of the savings has found its way into the RBI relief bonds. Despite talks of an interest rate cut in the bonds time and again, the corpus has grown a whopping 166 per cent in the first nine months of 2001-02.
According to the Reserve Bank of India, the relief bonds have mopped up Rs 11,336.32 crore during April-December 2001 compared to Rs 4,252.08 crore in the corresponding period last year.
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The relief bonds, which have a five-year tenure, offer an attractive 8.5 per cent tax-free interest to investors. In the highest tax bracket, the effective yield on the relief bonds works out to almost 11 per cent.
Market sources said the investor profile of relief bonds comprised mostly high networth individuals who can afford to lock in their funds for five years. Further, half yearly coupon payment in the relief bonds was another feature which attracted investors, they said.
"Another reason for the high mop-up this year is that Unit Trust of India (UTI) did not launch any monthly income plans (MIPs) this year. Every year, UTI would raise about Rs 3,000-4,000 crore through its MIPs by offering about 10-11 per cent in the second half of the year," said Dhiren Kumar, chief executive, Value Research, a Delhi-based mutual fund tracking company.
The finance ministry data shows that the actual growth of small savings in the country between April and October 2001 was only Rs 337 crore over the last year's level of Rs 47,477 crore, reflecting a marginal growth of 0.71 per cent.
The growth in small savings during April-October 2000 was Rs 7,149 crore, up 17.73 per cent compared to the previous year. In 1999-2000 also, the small savings collection had grown by Rs 5,528 crore posting a 15.89 per cent growth.
Even as the government lowered the administered interest rates on the NSC, NSS, Kisan Vikas Patra, post-office schemes and PPF by 1-1.5 per cent earlier this year, it maintained the interest rate on relief bonds at 8.5 per cent. "The disparity on the interest structure in the instruments is biased in favour of RBI relief bonds," pointed out Kumar.
The RBI data reveals that the month-on-month subscription to the relief bonds this year has been phenomenal. While in April 2000 the amount raised was Rs 353.22 crore, in April 2001 it was almost thrice at Rs 968 crore. Similarly, in December 2001 the collections peaked to Rs 1,579 crore compared to just Rs 473 crore in the previous December.