A new deal for senior citizens

By C. R. L. Narasimhan

In an interesting move, the Reserve Bank of India has announced a new deposit scheme for senior citizens the details of which will presumably be decided by individual banks in consultation with the RBI.

However, for now, it appears to be a bold and most welcome move to break the negative mindset that has clouded official policy towards the country's senior citizens.

Every one knows that senior citizens have been at the receiving end of all the failures associated with a market driven approach.

The NBFC (non-banking finance company) failure, the collapse of several ``plantation'' schemes and now the serious irregularities in the stock markets have impoverished many sections of the society of which the most vulnerable are the elderly.

Mutual funds on which so much reliance was placed have been another big disappointment. To make matters worse, the Government recently slashed the interest rate on contractual savings and the rates paid by the post office and the National Savings Organisation (NSO).

The RBI says that the new deposit scheme, tailor-made for senior citizens, will offer higher and fixed rates of interest as compared those on normal deposits of similar size. The scheme will also incorporate simplified procedures for automatic transfer of deposits to nominees in the event of death.

On the lending side, the RBI has clarified that the concept of prime lending rate (PLR) will be further refined. The PLR was introduced in April 1997 to offer more flexibility to banks that have since then been offering loans either on a floating rate or on a fixed rate basis.

At present banks cannot charge more than the PLR for loans up to Rs. 2 lakhs nor can they charge less than the PLR for loans above Rs. 2 lakhs. In terms of the latest credit policy, the PLR has been converted into a reference or benchmark rate. It will no longer be the minimum rate to be charged to borrowers.

Moreover, international experience has been that while the PLR has traditionally been the lowest rate charged to prime borrowers, in recent years major banks abroad have been providing loans at even below PLR.

Banks in India will now follow suit with the RBI relaxing the requirement of PLR being the floor rate for loans above Rs.2 lakhs. In other words, creditworthy borrowers including public enterprises can now be offered loans at below the PLR. The respective bank boards will however decide on these issues.

Another innovation has been in the term deposit area. As of now it is mandatory to allow premature withdrawals, if required by the depositors. However, the latter have to pay a penal interest as some banks have complained the premature withdrawal of large deposits may impact adversely on the balance sheets.

The RBI has now proposed that in certain cases and with advance notice, banks can disallow premature withdrawals.

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