Interest rate on small savings, PPF lowered

The government today reduced the interest rate on Public the Provident Fund (PPF) from 8.8 per cent to 8.7 per cent. The new rate will come into effect from April 1.

It also lowered the rate on other small savings schemes, with maturity of two years or more, by 10 basis points. This includes fixed deposits (FD) and recurring deposits (RD), as well as National Savings Certificates (NSC).

A one-year time deposit will now fetch the investors an interest at the rate of 8.2 per cent, against 8.3 per cent earlier. Five-year NSC and 10-year NSC will give a rate of return of 8.5 per cent and 8.9 per cent, respectively. The senior citizens savings scheme will offer the highest rate of interest at 9.2 per cent.

Monthly Income Schemes of five-year maturity will earn an interest of 8.4 per cent. Interest on savings deposit and one-year term deposit remains unchanged at 4 per cent and 8.2 per cent, respectively.

Based on the decisions taken by the government on the recommendations of the Shyamala Gopinath Committee for Comprehensive Review of National Small Savings Fund, the interest rates for small saving schemes are to be notified every financial year, before April 1 of that year. The committee had recommended benchmarking small savings returns with the market rate.

Planning Commission Deputy Chairman Montek Singh Ahluwalia justified the move saying the returns remain favourable to depositors in real terms, as inflation is lower than it was two years ago.      

“I don't believe that interest rate for savers through the post office system can be delinked completely from the interest rate system in the country. If you want low rate environment, you cannot say, ‘I want higher interest rate for savers and low interest rate for borrowers’. They have probably moderated a little bit in line with the softening of interest rates,” Ahluwalia said on the sidelines of the Skoch summit.      

The Reserve Bank of India cut the repo rate by 25 basis points in its last monetary policy review.

                                  

Core banking must for co-op banks by Dec 31: RBI

The Reserve Bank of India (RBI) on Wednesday mandated a deadline for Urban Co-operative Banks (UCBs) to implement the core banking solutions (CBS) by December 31, 2013. In case of any non-compliance, UCBs may be stripped of some facilities in terms of regulatory approvals.

"Very few UCBs have adopted CBS," RBI said in a notification.

"Hence, all UCBs are advised to implement CBS, in all their branches before December 31, 2013.  The concerned Regional Office of the Reserve Bank may be kept informed of the progress made in implementing CBS. It may be noted that failure to implement CBS within the timeframe, could result in denial of various facilities (expansion of branches or area of operation etc.) to UCBs."

What is CBS?

In simple term, this means, you need not to visit your own branch to do banking. You can do it from anywhere wherever, your bank has presence. Execution of CBS will help banks to offer all new-age products to their customers. Core Banking Solutions (CBS) essentially helps in integration of the range of services that can be offered by all the bank's branches from centralized data centers.

UCBs in India

There are around 1,621 UCBs in India. While every state-owned commercial bank has already implemented CBS system, UCBs lag far behind. Lack of funds, according to those district level banks, is the basic reason to do business without CBS. Many-a-times SIDBI - a nodal government agency, dillydallies in sanctioning funds to them, they argue.

However, RBI observes, the usage of Information Technology (IT) is critical for the survival and growth of banking institutions as IT usage not only helps banks to reduce their cost of operations, but also enables them to offer products and services at competitive rates to their customers.

"Small UCBs cannot afford the cost of implementing CBS," Duttaram Chalke, chairman Apna Sahakari Bank, an UCB operating in Maharashtra with nearly Rs 3,000 crore business (loans + deposits) told moneycontrol.com. His bank had implemented CBS in 2008.

Some of the big cooperative banks include Saraswath Bank, Shyamrao Vittal Bank and NKGSB Bank.

"CBS is always better for the future business prospect. Alternatively, small banks can hire the computer data centre (required for CBS) from relatively larger ones like us. We can accommodate them. We all are serving for the purpose of financial inclusion," he said.

IT has become not just an enabler but a differentiator for banks in a competitive environment. Further, for effective regulatory and supervisory compliance the banks need to use IT in their operations. Considering the importance of the matter, the Reserve Bank had included 'Review of Mechanisation and Computerisation' as one of the reviews to be placed annually before the Board of Directors of UCBs.

Government stance

"The Government of India has also observed that UCBs without CBS do not integrate well with the banking system and hence there is the need to quickly adopt this model. CBS is a necessity in today's banking scenario. UCBs are, therefore, advised in their own interest, as also in the interest of their customers, to adopt CBS as soon as possible," RBI said.

Moneycontrol Bureau