RBI gives more to depositors, investors
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RBI gives more to depositors, investors
 
RBI gives more to depositors, investors

Mumbai- The Reserve Bank of India (RBI) announced two changes that should cheer depositors and retail investors.

First, it allowed banks to pay interest on fixed deposits and bank accounts on a monthly or fortnightly basis, which should push up payouts. Given that the transition from paying interest on quarterly or longer intervals is not mandatory, several banks may just stick to the current system to avoid a higher burden. Alternatively, they will lower returns as they adopt a compounding interest rate formula. If a bank is offering 8% currently, it may decide to pay 7.96% to ensure that it is not affected by the higher cost. So, the depositor may not gain significantly.

Although the payout will not increase, it will provide more liquidity to senior citizens and others who depend on deposits as a major source of income.

In addition, retail investors can hope to get added protection against rising prices with RBI trying to make the inflation-indexed bonds more attractive by linking them to the consumer price inflation (CPI) while looking to make them tradable.

The bonds will have a fixed interest rate component, with another element linked to the CPI. So, if retail inflation goes up, one can hope to earn a little more to cover for the price rise and ensure that in real terms interest rates do not turn negative. Interest will be paid half-yearly and the bonds will be sold through banks.

The bonds, which have been in the works ever since finance minister P Chidambaram promised the new instrument to wean away investors from gold, were earlier linked to the wholesale price inflation as CPI or retail inflation that people at large face, was seen to be less stable given that it was introduced in January 2011.

The Inflation Indexed National Saving Securities will be introduced in November or December. They will come with tenure of 10 years with individuals, Hindu undivided families (HUFs), trusts and charitable institutions eligible to invest.

A third relief came in the form of an advisory to banks that they should levy charges on SMS alerts on usage basis instead of a fixed levy that most of them charge every quarter.
Posted On : 30 Oct 13
RBI gives more to depositors, investors
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