SDS kitty size raises a stink

Rs 7,000 crore gap in special deposit scheme corpus between government, bank books

The Union finance ministry is at loggerheads with public sector banks over the corpus size of the special deposit scheme (SDS).

According to public sector banking sources, there seems to be around a Rs 7,000 crore difference in the corpus of the SDS between the books of banks and the government.

While deposits accrued under the SDS run to around Rs 1,20,000 crore in the books of the government, banks are showing a figure higher by around Rs 6,500-7,000 crore. These deposits were collected by public sector banks between 1975 and 1981 on behalf of the government.

The government has asked public sector banks to furnish the data of funds received under the scheme for the period between 1975 and 1981.

Bankers said due to lack of computerisation, the data reconciliation has been showing two different figures and the problem has become more acute as the schemes of 1975 and 1981 have been merged for working out the total amount to be paid back to the depositors.

The 1975 scheme was meant for funds and trusts while the government floated the 1981 scheme exclusively for Life Insurance Corporation (LIC), General Insurance Corporation and Unit Trust of India.

The data compilation has become imminent as the scheme is coming up for redemption this year.

The government is learnt to be also preparing a comprehensive plan for meeting the redemption as the proceeds comprise high cost borrowing for the government.

There is a proposal to pay to small depositors borrowers in cash, while the bulk amount above the cut-off point to be decided by the government will be issued a security in lieu of the deposit amount.

The scheme was launched by the Centre on July 1, 1975, with the objective of providing better returns to non-government provident funds, superannuation and gratuity funds, surplus funds of the LIC and Employees' State Insurance Corporation etc.

The scheme was originally launched for 10 years but was extended for another 10 years in 1985, three years in 1995 and for a further five years in 1998.

The debut scheme used to offer an interest of 10 per cent per annum, followed by a hike of 100 basis points to 11 per cent in 1983 and another 100 basis points to 12 per cent in 1986. It remained unchanged for almost 15 years after that.

However, on account of the high cost of borrowing and the consequent repayment burden, the government decided to gradually reduce the rate of interest and the rate offered by the scheme as other interest rates had also declined sharply.