New Delhi: Small savings have declined 21% during the financial year 2006-07 compared to the compound annual growth rate (CAGR) of 13% during the six year period from 2000-01 to 2005-06.
Small savings have lost out to commercial banks which are offering higher interest rates on deposits. During the same period, saving deposits with banks increased by 14% maintaining the CAGR of 19%. These are some of the findings of the Eco Pulse Study on “Growth trend of small savings schemes,” released by Assocham.
According to Mr Venugopal Dhoot, President, Assocham, “a high interest regime has introduced small saving schemes to direct competition from commercial banks. With the advent of private fund managers gaining strength in the financial market, small savings could face some more loss in its deposits”.
Total receipts under the small savings schemes during the financial year 2006-07 dipped to Rs 1,37,560 crore as against Rs 1,73,283 crore in the previous year. However, saving bank deposits with commercial banks stood at Rs 6,55,274 crore at the end of FY07.
Small savings schemes include post office saving bank deposits, national saving schemes, monthly income schemes, national saving certificates, Indira Vikas Patra etc,which are meant to mobilize savings from small investors since they carry attractive interest rates, sovereign guarantee and tax benefits.
Commercial banks raised the deposit rates by 200 basis points during the financial year 2006-07, as RBI tightened money flow in the market. The rate of return on deposits of one-month to a year was 7% as compared to 5% in 2005-06, and the rate on deposits of more than one year was 9%.
Consequently, flow of savings changed their course from, Small Saving Schemes in which rate of return is Government administered, to saving deposits with banks. Interest rates offered by small saving schemes range between 3.5% on saving deposit account and 7.5% on one-year time deposits and 8% on two-year deposits.
Analysis of small savings
Monthly Income Scheme:Savings under Monthly Income Scheme which account for one-third of total small savings, declined by 47% in last financial year even as they recorded CAGR of 25% during the period from FY2000-06. Collections in FY07 was Rs 25007 crore as compared to Rs 47273 crore in the previous year. The total amount outstanding at the end of fiscal 2007 was Rs 1,53,636 crore.
Kisan Vikas Patra(KVP): Savings invested with KVP recorded a decline of 26% during 2006-07 as compared to a 25% increase in the previous year and an overall compound annual growth of 4.5% in the six-year period extending from FY00-06. Amount of Rs 153636 crore is outstanding in KVP, which is around 27% of total small savings.
Post Office Recurring Deposits (PORDS): Receipts of PORDS grew by mere 1% compared to previous year’s growth rate of 18% and CAGR of 19% during FY2000-06. The scheme accounts for 10.5% of total small savings. The amount outstanding at the end of fiscal 2007 was Rs 59279 crore.
National Saving Certificate VIII Issue: It accounted for 10.5% of the total small savings, registering a decline of 28% in last financial year as against the compound annual growth of 6% during six years preceding the fiscal 2007. The amount outstanding with the Scheme was Rs 59110 crore.
Post Office Time Deposits (POTD): These consisit of one, two, three and five-year time year deposits, accounting for 6.64% of small savings. Receipts with total POTD witnessed 11% decline in FY2007 as compared to the CAGR of 25% over the period of 2000-06. Two and five-year time deposits, bore maximum brunt with 18% and 6.5 downfall in collections. They had recorded compound annual growth of 34% and 23%, accounting for 5% and 30% of total amount invested in POTD.
One year time deposits, which have a maximum share of 48% in time deposits, registered growth of 9% in FY007 as compared to 27% in previous year and compound annual growth of 51%. Growth rate of three-year time deposits also came down to 1% as against 25% growth in fiscal 2006 and CAGR of 63%.
Post Office Saving Banks Deposits: Receipts in this scheme grew by merely 1% in FY2007 as compared to a growth rate of 27% in fiscal 2006. The share of post office saving deposits in total small savings is around 3%. The dcheme was growing at compound annual growth rate of 18% in the six-year period preceding FY2007.
Public Provident Fund (PPF): This accounted for 3% of total small savings registering a decline of 18% in receipts during the year 2007 while the scheme was growing at a compound annual growth rate of 13.6%. Growth rate in the previous financial year was 19%.
The report concludes by saying that deposites in small savings will witness a further drop in the coming months.