Date:11/03/2006 URL: http://www.thehindubusinessline.com/2006/03/11/stories/2006031103330900.htm

Back No re-look at post office interest rate

Our Bureau

Post office monthly income scheme

New Delhi , March 10

The Finance Minister, Mr P. Chidambaram, today held that the annual return of 8.2 per cent on small savings in post offices was `attractive' in view of the present inflation rate and said that there was no proposal to reconsider these rates.

``With inflation rate ranging between 4 to 5 per cent, the effective rate of interest of 8.2 per cent on Post Office Monthly Income Account scheme is very attractive. There is no proposal to reconsider the rates at present," Mr Chidambaram, said in the Lok Sabha on Friday.

Replying to a query during Question Hour on the Government's move to do away with the 10 per cent bonus on maturity value of post office monthly income account (POMIA), Mr Chidambaram said that it was not an attempt to discourage these small savings scheme.

Pointing out that small savings have been growing at a rapid rate (last year by 14 per cent), he said "rationalisation of interest rates on small savings was necessary as these are mandatory for the borrowings by the State governments which can borrow from the market at much lower rates."

The Finance Minister said that the Government's approach in general was to keep inflation at a low rate so as to provide higher effective returns to the saving community. "A broad approach is being followed that inflation rate must be kept low and give savers a rate which is higher than the inflation rate. Rate of return on POMIA is just next to effective 9.1 per cent rate of interest given to senior citizens," Mr Chidambaram said. The Government has revised the POMIA scheme under which bonus would not be paid on the deposits made in accounts opened on or after February 13, 2006. However, Mr Chidambaram clarified that all deposits opened before the cut-off date shall continue to be eligible for bonus as hitherto.

The decision to do away with the bonus was taken to align the effective yield on deposits under this scheme with other comparable savings instruments, he said. The rates of penalty for premature withdrawal of deposits under the POMIA scheme have also been modified with effect from February 10, 2006.