This refers to the report “FinMin: Cut FD rates for senior citizens” (February 1). Ideally, such instructions with industrial and social implications should have been issued through the Reserve Bank of India (RBI) after due deliberations. North Block appears to be unaware of how interest rates evolved to the present stage. At the time of retirement in the early 1990s, retirement benefits deposited in banks or post offices gave a return of 12 per cent per annum. Now, the return has come down by 20 to 30 per cent. Hence, the 50 to 100 basis points of additional interest on deposits of senior citizens was instructed to be paid by banks by the RBI. The Senior Citizens Savings Scheme with higher than market-related interest rate and tax benefits was introduced more than a decade back. The pressure on senior citizen’s personal budget has only increased on account of negative returns on his/her savings and escalation in costs owing to inflation. Moreover, the finance ministry’s advice will have no impact on public sector banks’ profitability, since deposits already contracted may not be affected, and senior citizens may move their deposits to other avenues that give better returns.
M G Warrier Thiruvananthapuram
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