Falling interest rates hit pensioners
- The SBI study backed the idea of according full tax rebate on the Senior Citizens Savings Scheme (SCSS)
- Under this scheme, a senior citizen can deposit Rs 15 lakh and the current interest rate is 8.6%
Taking the argument forward, it said considering that there are more than 4 crore pensioners who have average term deposits of Rs 3.34 lakh per account, the net impact on private final consumption expenditure — a barometer for consumption — due to low interest income is estimated at 0.3%.
The annual interest income at the rate of 8.5% in 2015 worked out to Rs 28,390 and the present interest income at the rate of 6.75% was estimated at Rs 22,545, which shows a loss of Rs 5,845 annually.
The economy is passing through a low interest rate regime with the RBI cutting rates for five consecutive times to boost growth. Inflation has also remained benign and low for a sustained period, hurting the real monthly returns of pensioners.
The RBI has reduced its key policy rate by 135 basis points from 6.5% at the beginning of the year to 5.15%. Deposit rates during the same period have come down by an average of 1% for most banks.
The SBI study backed the idea of according full tax rebate on the Senior Citizens Savings Scheme (SCSS). Under this scheme, a senior citizen can deposit Rs 15 lakh and the current interest rate is 8.6%. “However, the interest on SCSS is fully taxable which is a major drawback (the interest amount of Rs 1 lakh deposit for five years is around Rs 51,000, which is taxable),” the report said.
“In India, there could be at least 40 million senior citizen accounts with an average deposit size of Rs 3.34 lakh. In a declining interest rate regime, it is just and fair that interest of both depositors and borrowers is treated on par,” said Soumya Kanti Ghosh, group chief economic adviser, SBI.