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NIVEDITA MOOKERJI
Are customers turning away from conventional small savings instruments after the announcement of reduced interest rates on them? Although most in the business predict a certain shift in customer movement, others believe that traditionalists will stick to the known path.
Says Veena Jain, a Delhi-based broker: ``The revised interest rates on small savings have not had much impact on the tax-saving post office schemes so far.'' But then, it's too early in the day, she adds. Jain, however, says that it depends a lot on how an agent convinces a customer on which investment instrument to opt for.
But since the interest rate on PPF has remained at 12 per cent, won't more people move to PPF from other post office schemes? Replies Jain: ``It might happen, but not yet.''
Anyway, she says, PPF is a much more popular scheme because it is a consolidated investment, which one can see in one's passbook, whereas NSCs have to be bought every year for tax purposes. But she states that the impact of revised interest rateswill be much more on the Monthly Income Scheme (MIS) and the time deposits offered by the post office.
The reason why people are opting out of schemes such as post office MIS is quite clear. Explains Pawan Prakash Gupta, secretary of the Brokers' Association: ``When parallel schemes in banks offer similar rates of interest, there's no reason why a customer should invest in post office schemes such as MIS.'' If the returns are similar, the customer will automatically turn to better services.
Gupta is quite clear that a diversion will take place in the investment pattern, following the cut in interest rates on small savings. According to Gupta, many of those who would have bought NSC certificates will now go for PPF. Also, those geared towards Indira Vikas Patras and Kisan Vikas Patras may now move over to UTI fixed rate schemes, bonds offered by IDBI and ICICI and open-ended debt funds, says Gupta. Bima Neevesh offered by LIC is another scheme that might attract many small investors interested in taxrebate under Section 88, Gupta adds.
D Chatterjee, chief post master in New Delhi's Gol Dak Khana, states that no study has been conducted so far on the impact of reduction of interest rates on small savings. Only a comparison of the number of accounts per day after the revised rates came into effect, with rates prevailing before the revision will indicate whether there has been a shift in the saving trend, Chatterjee explains.
Chatterjee, however, says: ``Since no formal study has been undertaken on the subject so far, it's only a guess that some investors might just opt for PPF instead of other post office schemes.'' He explains why the interest rate on PPF cannot be altered. Says he: ``Since PPF is an Act, a simple notification is not enough to alter the interest rates.''
Meanwhile, the focus is generally on better customised services to retain as many customers as possible. Says Pushpendra Mehta, a consultant in retail finance, with the competition among various players heating up and consumers'demands rising, all retail finance institutions are likely to service customers on an individual basis. So, the line of differentiation will clearly be customer service.
In the context of the reduced interest rate on small savings, Mehta feels that a change such as this will hardly make a difference. He explains: ``Due to the lack of investment opportunities currently prevailing in India, the fall in interest rates in small savings will not be of much import. Also, the deeply embedded Indian psyche at this point in time views any instrument of saving backed by the government of India as a safe bet, which may also be another reason for it not to impact the saving trends of Indians.''
Besides, small savings are not the only schemes to have suffered a cut in interest rates. Many banks have done the same as well. In fact, Mehta says: ``It is more than likely that there will be a cut in interest rates on retail deposits, owing to the prevalent market and economic conditions.''According to Mehta, small savings(PPF and post office schemes) still remain a favoured form of investment, next only to the top of the charts -- bank fixed deposits. The idea is to combine safety and a reasonable rate of return, Mehta adds.
Whatever be the beliefs on the saving pattern of customers, it will still take about two to three weeks to establish the trends. March will be the month to watch out for. Only after that can one begin to say that the rate cut on small savings has made an impact on saving trends.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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