Month: February 2021

RBI sets up eight-member panel to strengthen UCB sector

Banking & Finance

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The Reserve Bank of India (RBI) has set up an eight-member expert committee to examine the issues and to provide a road map for strengthening the urban co-operative banking (UCB) sector, including suggesting effective measures for faster rehabilitation/ resolution of these banks and assess potential for consolidation in the sector.

The committee, headed by NS Vishwanathan, former Deputy Governor, RBI, will leverage on the recent amendments to the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies) to review the current regulatory/supervisory approach and recommend suitable measures/changes to strengthen the sector.

The committee will take stock of the regulatory measures taken by the central bank and other authorities in respect of UCBs. It will assess the impact of these measures over last five years to identify key constraints and enablers, if any, in fulfilment of their socio-economic objective.

The panel will consider the need for differential regulations and examine prospects to allow more leeway in permissible activities for UCBs with a view to enhance their resilience.

Vision document

It will draw up a vision document for a vibrant and resilient urban co-operative banking sector having regards to the Principles of Cooperation as well as depositors’ interest and systemic issues.

The committee will submit its report within three months from the date of its first meeting.

Besides Vishwanathan, the other members of the committee are: Harsh Kumar Bhanwala, former Chairman, NABARD; Mukund M Chitale, Chartered Accountant; NC Muniyappa and RN Joshi (both retired IAS officers); MS Sriram, Professor, IIM Bangalore; Jyotindra M Mehta, President, NAFCUB; and Neeraj Nigam, Chief General Manager-in-Charge, Department of Regulation, RBI.

The amendments to the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies) have brought near parity in regulatory and supervisory powers between UCBs and commercial banks in respect of regulatory powers, including those related to governance, audit and resolution.

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Kerala Financial Corporation to launch debit cards

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Kerala Financial Corporation, a leading State Financial Corporation, is the first among government financial institutions in Kerala to introduce its own debit card. “We will soon issue five-year Rupay Platinum cards co-branded with public sector banks,” according to Tomin Thachankary, Chairman and Managing Director.

The cards will be issued in line with Reserve Bank of India guidelines, he said. Kerala Financial Corporation (KFC) cards can be used at ATMs, POS machines, and online transactions just like any other regular debit card. Besides, they can be linked to the KFC mobile app for making high-value transactions.

From now on, loans to KFC entrepreneurs and the repayments will be routed through this channel. The Chairman and Managing Director also said that Kerala Financial Corporation would monitor the end-use of funds effectively when disbursements are made through debit cards.

In the past, repayment towards of KFC loans was being carried out every month. But repayments towards major loans have now been changed to a weekly or daily basis Google Pay or other apps. With the introduction of the debit card, such repayments can be further simplified.

This is an important step towards facilitating the shift from currency transactions to a fully digitalised system, Thachankary said. The Corporation also plans to issue debit cards to its employees. Their salaries and other allowances can be paid out in this manner.

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RBI announces OMO of ₹10,000 crore on Feb 25

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The Reserve Bank of India (RBI) on Monday said it will conduct simultaneous purchase and sale of Government securities (G-Secs) under Open Market Operations (OMO) for an aggregatei amount of ₹10,000 crore each on February 25, 2021.

Under this exercise , also known as ‘Operation Twist’ (OT), RBI purchases G-Secs/ GS of longer maturities and sells an equal amount of G-Secs of shorter maturities to manage the yield curve. This move is aimed at softening the yield curve at the longer end.

RBI will purchase three G-Secs — 5.22 per cent GS 2025, 6.45 per cent GS 2029 and 6.57 per cent GS 2033 — aggregating ₹10,000 crore under OT. Simultaneously, it will sell two G-Secs — 8.79 per cent GS 2021 and 8.20 per cent GS 2022 — aggregating ₹10,000 crore.

The OT move comes in the backdrop of G-Sec prices hardening due to over supply of paper on account of higher government borrowing.

G-Sec prices had declined last Friday, erasing the previous day’s gains, as the Government devolved on Primary Dealers (PDs) about 61 per cent of the ₹11,000 crore it wanted to raise via auction of the 2035 security.

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PSBs privatisation: Guessing the list

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Two public sector banks (PSBs) in India’s financial services sector firmament may come a full circle if the government makes good on the Budget announcement of privatising them.

Why full circle? Because prior to their nationalisation, which happened in two phases – in 1969 (14 banks) and 1980 (6 banks) – all PSBs were private sector banks.

Since the Budget announcement on February 1, various viewpoints have emerged as to which two PSBs could be picked up for privatisation.

Some experts say the six PSBs that were left out of last year’s mega-consolidation exercise could be on the government’s radar for privatisation. Others opine it could be two of the five large PSBs into which eight mid-sized PSBs merged in the last two years.

There could also be another dimension – the government may choose a combination of the aforementioned two possibilities.

Though Debashish Panda, Secretary, Department of Financial Services, has said that all PSBs are eligible for privatisation, in all likelihood, State Bank of India (SBI) will be kept out of this exercise as it the only government-owned bank that is classified as a domestic systemically important bank (D-SIB). The other two D-SIBs – ICICI Bank and HDFC Bank – are private sector banks.

 

The bid to privatise PSBs stems from the fact that the government is having to keep pumping in money year after year to help them meet regulatory capital as well as growth capital despite stretched finances.

So, the government’s move to have a bare minimum presence of public sector enterprises (PSEs) in strategic sectors, including “banking, insurance and financial services”, comes in the aforementioned backdrop.

The remaining Central PSEs in the strategic sector will be privatised or merged or subsidiarised with other CPSEs or closed, per the Budget.

Since 2017-18 and till date, the government has infused capital aggregating ₹2,56,943 crore. Of the recapitalisation provision of ₹20,000 crore for FY21, ₹5,500 crore has been provided to Punjab & Sind Bank. The balance ₹14,500 crore has not yet been allocated.

Suppressed market valuation

Karthik Srinivasan, Group Head – Financial Sector Ratings, ICRA, said the current suppressed market valuation (of PSBs) makes it tricky as to how much the government will be able to raise from disinvestment.

And given the very low market capitalisation of many PSBs, unless the government dilutes a significantly large stake, the effective money it can raise is not going to be meaningful.

Srinivasan observed that if the government has to sell a significant stake in PSBs, it will also need to have the Reserve Bank of India (RBI) on board because of the regulations relating to (cap on) single party shareholding in banks.

Not selling family silver

In her address at a conclave in Mumbai February 7, Union Finance Minister Nirmala Sitharaman rebutted Opposition charge that disinvestment/ privatisation of public sector enterprises (PSEs) is akin to selling family silver.

“This (disinvestment/ privatisation) needs to be seen in the correct perspective. It is not, as the Opposition says, a case of selling family silver. Not at all. Family silver should be strengthened. It should be your taakat (strength). “To prime the PSEs is the only aim of our policy. You need them, you need them to scale up, you need them to be in maximum potential so that they meet the aspirations of growing India,” said Sitharaman.

She emphasised that the logic of bare minimum presence in the strategic sectors is that the government enterprise should operate on a large scale so that India gets a strategic advantage.

Sitharaman observed: “For India’s aspirations and developmental requirements, we may possibly need 20 banks of the size of State Bank of India (SBI).

“For that, we need to create more and more strength for the existing public sector undertakings, scale them up and make sure that they professionally run themselves.”

Which PSBs could be privatised?

This is a million-dollar question and there is no clear-cut answer. However, analysts have tried to wrap their head around this question and find answers, as is their wont.

Some analysts posit that the government may leave out the five large PSBs – Bank of Baroda (BoB), Punjab National Bank (PNB), Canara Bank, Union Bank of India (UBI) and Indian Bank – from the privatisation exercise as, post-consolidation, they are currently in the midst of stabilising their operations and have just started to reap the benefit of cost-savings.

Moreover, going by the FM’s statement that India may need 20 banks of the size of SBI, the aforementioned banks are likely to remain in the public sector. Maybe, a 5-10 per cent disinvestment of government stake could happen in these PSBs a year or two down the line.

Hence, the attention turns to the six PSBs – Bank of India (BoI), Bank of Maharashtra (BoM), Central Bank of India (CBoI), Indian Overseas Bank (IOB), Punjab & Sind Bank, and UCO Bank – which were not part of the mega-consolidation exercise that happened last year. Since BoI is a fairly large PSB with an international presence (global business mix of ₹10,26,866 crore as of December-end 2020), the government may not be keen on privatising it.

UCO Bank, too, is unlikely to be privatised as two Kolkata-headquartered PSBs have already been amalgamated (United Bank of India with PNB and Allahabad Bank with Indian Bank). So, the Centre may want to retain at least one PSB with its headquarters in East.

Since the government infused ₹5,500 crore in Punjab & Sind Bank only two months back, it may hold back on its privatisation for a year or two. So, the shortlist of PSBs that could be eligible for privatisation gets whittled down to three – BoM, CBoI and IOB. CBoI and IOB are still under the RBI’s prompt corrective action (PCA).

But they could be brought out of PCA as there are visible signs of improvement in some of the key parameters such as profitability and asset quality (in net NPA terms as they have stepped up provisioning) in the last 3-4 quarters.

BoM stands out as it has posted net profit for eight quarters on the trot after the massive quarterly loss of ₹4,856 crore in December 2018. The Pune-headquartered PSB’s asset quality has shown marked improvement and it has a good RAM (retail, agriculture, MSME) to corporate loan mix of 61: 39.

In 2018, Uday Kotak, Executive Vice-Chairman and MD, Kotak Mahindra Bank, observed that private banks’ market share will go up significantly and be on a par with that of PSBs in the next five years. The top banker’s comment came in the backdrop of PSBs then reeling under bad loans and provisioning constraining their ability to lend.

So, will Kotak’s market share prediction come true? Only time will tell whether the government has taken the right decision.

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Why proactive regulatory actions are the need of the hour

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The various measures introduced by the Government of India and RBI last year have helped limit the adverse impact of the Covid-19 pandemic on the economy.

Measures such as the sharp cuts in policy rates, the transmission of the same to lending rates by virtue of maintaining abundant liquidity conditions, targeted operations to meet the funding requirements of NBFCs, and facilitating a large sovereign borrowing programme at competitive rates were some of the major initiatives undertaken by the Monetary Policy Committee (MPC) and the central bank.

While the industry and markets have become far more optimistic after the announcement of a growth-oriented Budget by the Finance Minister, continuing regulatory support to make economic growth more durable, while not compromising on the financial sector stability, is certainly the need of the hour.

The RBI remains cognizant of the surplus systemic liquidity and, expectedly, resumed normal liquidity operations from January 2021 to absorb a part of the excess liquidity, which has led to a rise of around 30 bps in the short-term rates and contributed to flattening of the yield curve.

Subsequently, with the announcements of increase in the GoI’s dated market borrowings as a consequence of slippage in fiscal deficit relative to the earlier targets surfaced, the long-term yields recorded a sharp rise. The effects spilled over on the corporate bond markets as well, with the yields on the 3-year and 5-year AAA corporate bond yields rising by 37 and 30 bps, respectively, in the days immediately after the announcement of the Budget FY22.

Bond markets

However, in its review on February 6, the MPC allayed the market concerns by continuing the assurance of maintaining the accommodative stance of monetary policy into the next financial year to revive the growth on a durable basis. This was supplemented by the RBI with policy measures such as extension of enhanced levels of held-to-maturity levels of bond portfolio of banks by one-year and phased hike of cash reserve ratio.

Additionally, the RBI Governor’s statements of ensuring the orderly completion of sovereign borrowing for FY22, assurance that the stance of liquidity remains accommodative in consonance with that of monetary policy, and reiteration that the yield curve is a public good, were intended to reassure the bond market.

The subsequent announcement of open market operations to purchase government securities of ₹20,000 crore helped in reversing a part of the rise in yields on benchmark government bonds. However, despite the reassurances, the devolvement of government bonds on to the primary dealers in recent auctions is likely to keep an upward pressure on government securities as markets continue to remain concerned on huge supply.

Despite recent RBI measures, the yields on corporate bonds still remain elevated compared to pre-budget levels.

Apart from the short-term measures to address the investor demand for large supply of sovereign debt, the regulatory proposal to provide direct access to retail investors could widen the investor base for government securities in the long term. If successful, this could lead to a structural change in yields on risk-free instruments, which act as pricing benchmarks for corporate bonds. Improved investor education and awareness on linkages of bond yields and price will be needed to attract retail investors, who also have access to other risk-free investment products such as Small Savings Deposit products of GoI which, though illiquid, offer higher returns.

Extension of time period

A continued assurance to markets with necessary actions to prevent a sharp rise in bond yields will be vital to maintain continued buoyancy in the Indian debt capital markets. Over the years, NBFCs have accounted for more than 50 per cent of the domestic bond issuances.

With bank exposure to NBFCs rising steadily over the last few years, better access to bond markets will be important for the latter to scale up, given the recent events that have reduced the investor appetite for NBFC papers. The announcement of funding availability under on-tap TLTROs is a welcome move; however, an extension of time-period beyond March 31, 2021, could have been considered by the RBI as the availability of adequate funding is still a challenge for the sector.

The GoI’s proposal to have an institutional framework for the proposed body, which will act as market maker in corporate bonds in normal and stressed times, is a welcome measure. If operationalised well, it will aid in improving not only the secondary market liquidity, but also deepen the bond markets. The measure will also help improve the credit flow at competitive rates to the NBFC sector, which helps in last-mile credit delivery in India. While the RBI continues to reiterate the importance of NBFCs in the Indian financial system, the proposal to tighten the regulations for NBFCs, along with higher supervision, is a welcome move as the investor confidence levels are not uniform across issuers. In that context, the discussion paper released by the RBI does not seem onerous on the NBFCs. While the paper did not articulate on a backstop facility from the RBI as available to banks, it did not stipulate any CRR or SLR requirements as well.

The anxiety on outcomes of asset quality among lenders and investors remains high, and though the government has budgeted capital of ₹200 billion for public banks for FY22, the proposal to defer the peak regulatory capital by six months could be a confidence booster for public banks.

Given the uncertainty on asset quality and timing of capital infusion by the GoI, the proposed measure will reduce the risk aversion of lenders towards making fresh credit proposals, as their worries on capital position ease. Apart from capital, improved confidence among lenders on faster resolution of stressed assets could address the issue of low credit growth.

A focussed approach for faster resolution, which the proposed asset management company could bring in, could be a positive. Regulatory incentives, which can prompt lenders to transfer stressed asset to the proposed AMC, could aid in the consolidation of such assets for faster resolution. Going ahead, the regulator could consider providing sufficient incentives for the same. To conclude, proactive monetary policy measures will be required to sustain the recovery being witnessed in financial sector, to retain the improved confidence of lenders as well as investors.

The writer is MD and Group CEO, ICRA Limited

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EPF Or NPS: Where Should I Invest In Budget 20-21 To Secure My Retirement?

Personal Finance

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EPF

The rule of the Provident Fund has been in effect for many decades and is required to be delivered to its employees by an employer. For employees with a minimum wage of less than INR 15,000 p.m., it is mandatory for an establishment having more than 20 employees to contribute to EPF. Employees who receive a basic salary above this limit can contribute towards EPF. Pursuant to Section 80C of the Income-tax Act, such contributions are tax-free up to Rs 1.5 lakh per year. The accrued interest is tax-free and even the withdrawal if the employee has supported continuous employment for at least five years within a contribution limit of Rs 2.5 lakhs annually. At age 58 or after two months of unemployment, the corpus can be withdrawn by the employee. The interest rate is determined annually by EPFO, i.e. the rate for FY20 was capped at 8.5%. Employees can also consider Voluntary Provident Fund (VPF), which provides the same interest rate and tax incentives as the EPF, with more than the standard 12 per cent deduction. As a voluntary contribution to the EPF, the employee can also donate 100 per cent of his/her minimum wage. But the Rs 2.5 lakh cap will mainly impact individuals who contribute to VPF and have a high income.

NPS

NPS

NPS is a pension scheme where the pension benefits are linked to the market. NPS contributions are tax-free under Section 80C up to Rs 1.5 lakh and under Section 80CCD(1B) up to a limit of Rs 50,000. NPS returns vary significantly as per equity, corporate bond and government bond performance, which are the three asset groups that NPS enables you to allocate in. Contributions towards this retirement fund mature when you hit the age of 60 where you can make a tax-free withdrawal of 60% from the corpus and the remaining 40% should be used to purchase taxable annuity products. Compared with the 8-9 per cent interest historically delivered by EPF, NPS returns vary significantly, considerably NPS is a voluntary contribution system with a minimum deposit limit in Tier I of Rs 500 and in Tier-II accounts of INR 1,000.

Withdrawal comparison

Withdrawal comparison

You can withdraw all of your EPFO corpus upon meeting the retirement age. The NPS, though, is organized as a pension scheme. Thus, at retirement, you can make a tax-free withdrawal of 60% of your accrued corpus. The 40 per cent left must be used to purchase an annuity product as we discussed above. For those who wish to use a large portion of the retirement corpus for financial purposes such as owning a house or financing the marriage of children, NPS can’t be a smart bet here. In certain situations, proceeds from the EPF are considered for financial objectives rather than covering retirement life.

Our take

Our take

No doubt NPS has achieved in respect of returns over EPF in the last two years, but its yields compared to EPF are not secure and fixed. Early-age investors should contribute towards NPS and settle for a high allocation of equity to build a massive corpus to meet retirement plans. If you are not willing to take market likelihood in the final decades of your employment, then you can consider EPF. Returns under PF are set at the interest rate decided annually by the government. The return from NPS, however, depends on the NAV of equity and debt. Therefore, since PF provides secure and guaranteed returns, NPS provides risk and higher returns. Even though the interest received from contributions above Rs 2.5 lakh is taxable, the acceptable interest rate proceeds to render the EPF a smart decision. Considering the additional deduction open, one can contribute to NPS as well. High-income investors must diversify their holdings instead of focusing on a single retirement vehicle to minimize their tax exposure and optimize returns. Investors must consider first his or her risk appetite, lock-in, liquidity, maturity and so on of the investment vehicle before opting a one.



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EPF Or NPS: Where Should I Invest In Budget 20-21 To Secure My Retirement?

Personal Finance

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Read More/Less


EPF

The rule of the Provident Fund has been in effect for many decades and is required to be delivered to its employees by an employer. For employees with a minimum wage of less than INR 15,000 p.m., it is mandatory for an establishment having more than 20 employees to contribute to EPF. Employees who receive a basic salary above this limit can contribute towards EPF. Pursuant to Section 80C of the Income-tax Act, such contributions are tax-free up to Rs 1.5 lakh per year. The accrued interest is tax-free and even the withdrawal if the employee has supported continuous employment for at least five years within a contribution limit of Rs 2.5 lakhs annually. At age 58 or after two months of unemployment, the corpus can be withdrawn by the employee. The interest rate is determined annually by EPFO, i.e. the rate for FY20 was capped at 8.5%. Employees can also consider Voluntary Provident Fund (VPF), which provides the same interest rate and tax incentives as the EPF, with more than the standard 12 per cent deduction. As a voluntary contribution to the EPF, the employee can also donate 100 per cent of his/her minimum wage. But the Rs 2.5 lakh cap will mainly impact individuals who contribute to VPF and have a high income.

NPS

NPS

NPS is a pension scheme where the pension benefits are linked to the market. NPS contributions are tax-free under Section 80C up to Rs 1.5 lakh and under Section 80CCD(1B) up to a limit of Rs 50,000. NPS returns vary significantly as per equity, corporate bond and government bond performance, which are the three asset groups that NPS enables you to allocate in. Contributions towards this retirement fund mature when you hit the age of 60 where you can make a tax-free withdrawal of 60% from the corpus and the remaining 40% should be used to purchase taxable annuity products. Compared with the 8-9 per cent interest historically delivered by EPF, NPS returns vary significantly, considerably NPS is a voluntary contribution system with a minimum deposit limit in Tier I of Rs 500 and in Tier-II accounts of INR 1,000.

Withdrawal comparison

Withdrawal comparison

You can withdraw all of your EPFO corpus upon meeting the retirement age. The NPS, though, is organized as a pension scheme. Thus, at retirement, you can make a tax-free withdrawal of 60% of your accrued corpus. The 40 per cent left must be used to purchase an annuity product as we discussed above. For those who wish to use a large portion of the retirement corpus for financial purposes such as owning a house or financing the marriage of children, NPS can’t be a smart bet here. In certain situations, proceeds from the EPF are considered for financial objectives rather than covering retirement life.

Our take

Our take

No doubt NPS has achieved in respect of returns over EPF in the last two years, but its yields compared to EPF are not secure and fixed. Early-age investors should contribute towards NPS and settle for a high allocation of equity to build a massive corpus to meet retirement plans. If you are not willing to take market likelihood in the final decades of your employment, then you can consider EPF. Returns under PF are set at the interest rate decided annually by the government. The return from NPS, however, depends on the NAV of equity and debt. Therefore, since PF provides secure and guaranteed returns, NPS provides risk and higher returns. Even though the interest received from contributions above Rs 2.5 lakh is taxable, the acceptable interest rate proceeds to render the EPF a smart decision. Considering the additional deduction open, one can contribute to NPS as well. High-income investors must diversify their holdings instead of focusing on a single retirement vehicle to minimize their tax exposure and optimize returns. Investors must consider first his or her risk appetite, lock-in, liquidity, maturity and so on of the investment vehicle before opting a one.



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Best Government Schemes to Invest in 2021: Gsec, Gold bonds, NSC, PPF, APY

Personal Finance

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Government Securities (G-Secs)

Retail investors have several ways to invest in Government securities Treasury bills (T-Bills) and the Government of India (GoI) dated bonds on the primary market. G-Secs come in a variety of maturities from 91 days to 40 years, based on the length of the particular arrangement of the liabilities of the respective organizations.

Benefits of investing Government Securities

  • As they are Sovereign secure, there is no risk of default.
  • No TDS applicable on interest
  • G-Secs can be stored in a current Demat account
  • They can be quickly traded on the secondary market
  • G-Secs can also be used as collateral to borrow funds in the repo market.

Sovereign Gold Bonds (SGBs)

Sovereign Gold Bonds (SGBs)

Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold. The Bond is issued by Reserve Bank on behalf of the Government of India. Investors must pay the agreed price in cash and the bonds will be redeemed in cash at maturity. The SGBs are issued by Reserve Bank on behalf of the Government of India.

Benefits of SGBs

  • The risks and costs of storage are eliminated.
  • SGB is exempt from problems such as making charges and purity
  • The bonds can be held Demat form
  • TDS is not applicable on the bond.
  • The bonds are eligible as collateral for loans from banks.

Atal Pension Yojana

Atal Pension Yojana

Atal Pension Yojana (APY), a pension scheme for Indian residents, focuses on unorganized sector workers. Under the APY, a fixed minimum pension will be provided at the age of 60 years, based on the donation rendered by the subscribers.

Benefits of joining APY scheme

  • On the death of the contributor, the pension automatically vests to the spouse who is the default nominee
  • Tax exemption is applicable to payments made by individuals to Atal Pension Yojana under Section 80CCD of the Income Tax Act, 1961
  • GoI will also co-contribute 50% of the subscriber’s contribution or Rs 1000 per annum, whichever is lower.

in to or toward the inside of More (Definitions, Synonyms, Translation)

National Pension Scheme

National Pension Scheme

NPS aims at encouraging people the practice saving for retirement. It is an effort to find a permanent solution to the issue of providing every citizen of India with a sufficient retirement income. The NPS is a successful scheme for someone who wishes to schedule early retirement and has a low-risk appetite.

Benefits of NPS

  • There is a deduction of up to Rs 1.5 lakh can claim for the contribution made
  • NPS offers a broad variety of investment choices and the preference of pension funds (PFs)
  • Opening an account with NPS is simple. It provides seamless portability across jobs and locations
  • Until retirement, the accumulation of pension wealth rises over time with a compounding effect.

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana scheme was launched by the Government, designed to improve the betterment of the girl child. Investments made under the Sukanya Samriddhi scheme are excluded from income tax according to section 80C of the Income Tax Act.

Public Provident Fund (PPF)

Public Provident Fund, PPF is one of the popular investment avenues among Indians. It is a tax-free savings scheme. Individuals may invest up to Rs 1.5 lakh per year in their PPF account and can also claim tax benefits under section 80C of the Income Tax Act.

Prime Minister Vaya Vandana Yojana

Prime Minister Vaya Vandana Yojana

Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a pension scheme offered by the Government of India specifically for senior citizens aged 60 years and above.

Benefits of Pradhan Mantri Vaya Vandana Yojana

  • Pension is payable at the end of each period, during the policy term of 10 years, as per the frequency requested
  • Loan up to 75% of the purchase price will be allowed after 3 policy years.
  • The scheme is exempted from GST.
  • The scheme initially offers a fixed rate of return of 7.66% every year for 2020-21 per year and would reset thereafter.

Pradhan Mantri Jeevan Jyoti Bima

Pradhan Mantri Jeevan Jyoti Bima

Pradhan Mantri Jeevan Jyoti Bima is a term insurance plan launched by the Government of India. This plan aims to secure your family’s future with a life cover. This insurance scheme offers life insurance cover for death due to any reason.

Benefits of Pradhan Mantri Jeevan Jyoti Bima

  • The premium charged in the scheme is liable for tax benefits as provided for in Section 80C of the Income Tax Act.
  • This provides a death coverage of Rs 2,00,000 to the beneficiary in the case of a sudden demise.
  • Other Important Government schemes

National Savings Certificate (NSC)

National Savings Certificate (NSC)

National Savings Certificate (NSC) provides you with a guaranteed return and bears practically no risk as it is sponsored by the Government of India. NSC comes with a set maturity period of 5 years. There is no upper limit on the purchase of NSCs, but under Section 80C of the Income Tax Act, only investments up to Rs.1.5 lakh can earn you a tax rebate.

Make sure you keep a watch on the investment schemes as the government continues to adjust the functionality and the interest rate on a regular basis.

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Best Government Schemes to Invest in 2021: Gsec, Gold bonds, NSC, PPF, APY

Personal Finance

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Read More/Less


Government Securities (G-Secs)

Retail investors have several ways to invest in Government securities Treasury bills (T-Bills) and the Government of India (GoI) dated bonds on the primary market. G-Secs come in a variety of maturities from 91 days to 40 years, based on the length of the particular arrangement of the liabilities of the respective organizations.

Benefits of investing Government Securities

  • As they are Sovereign secure, there is no risk of default.
  • No TDS applicable on interest
  • G-Secs can be stored in a current Demat account
  • They can be quickly traded on the secondary market
  • G-Secs can also be used as collateral to borrow funds in the repo market.

Sovereign Gold Bonds (SGBs)

Sovereign Gold Bonds (SGBs)

Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold. The Bond is issued by Reserve Bank on behalf of the Government of India. Investors must pay the agreed price in cash and the bonds will be redeemed in cash at maturity. The SGBs are issued by Reserve Bank on behalf of the Government of India.

Benefits of SGBs

  • The risks and costs of storage are eliminated.
  • SGB is exempt from problems such as making charges and purity
  • The bonds can be held Demat form
  • TDS is not applicable on the bond.
  • The bonds are eligible as collateral for loans from banks.

Atal Pension Yojana

Atal Pension Yojana

Atal Pension Yojana (APY), a pension scheme for Indian residents, focuses on unorganized sector workers. Under the APY, a fixed minimum pension will be provided at the age of 60 years, based on the donation rendered by the subscribers.

Benefits of joining APY scheme

  • On the death of the contributor, the pension automatically vests to the spouse who is the default nominee
  • Tax exemption is applicable to payments made by individuals to Atal Pension Yojana under Section 80CCD of the Income Tax Act, 1961
  • GoI will also co-contribute 50% of the subscriber’s contribution or Rs 1000 per annum, whichever is lower.

in to or toward the inside of More (Definitions, Synonyms, Translation)

National Pension Scheme

National Pension Scheme

NPS aims at encouraging people the practice saving for retirement. It is an effort to find a permanent solution to the issue of providing every citizen of India with a sufficient retirement income. The NPS is a successful scheme for someone who wishes to schedule early retirement and has a low-risk appetite.

Benefits of NPS

  • There is a deduction of up to Rs 1.5 lakh can claim for the contribution made
  • NPS offers a broad variety of investment choices and the preference of pension funds (PFs)
  • Opening an account with NPS is simple. It provides seamless portability across jobs and locations
  • Until retirement, the accumulation of pension wealth rises over time with a compounding effect.

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana scheme was launched by the Government, designed to improve the betterment of the girl child. Investments made under the Sukanya Samriddhi scheme are excluded from income tax according to section 80C of the Income Tax Act.

Public Provident Fund (PPF)

Public Provident Fund, PPF is one of the popular investment avenues among Indians. It is a tax-free savings scheme. Individuals may invest up to Rs 1.5 lakh per year in their PPF account and can also claim tax benefits under section 80C of the Income Tax Act.

Prime Minister Vaya Vandana Yojana

Prime Minister Vaya Vandana Yojana

Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a pension scheme offered by the Government of India specifically for senior citizens aged 60 years and above.

Benefits of Pradhan Mantri Vaya Vandana Yojana

  • Pension is payable at the end of each period, during the policy term of 10 years, as per the frequency requested
  • Loan up to 75% of the purchase price will be allowed after 3 policy years.
  • The scheme is exempted from GST.
  • The scheme initially offers a fixed rate of return of 7.66% every year for 2020-21 per year and would reset thereafter.

Pradhan Mantri Jeevan Jyoti Bima

Pradhan Mantri Jeevan Jyoti Bima

Pradhan Mantri Jeevan Jyoti Bima is a term insurance plan launched by the Government of India. This plan aims to secure your family’s future with a life cover. This insurance scheme offers life insurance cover for death due to any reason.

Benefits of Pradhan Mantri Jeevan Jyoti Bima

  • The premium charged in the scheme is liable for tax benefits as provided for in Section 80C of the Income Tax Act.
  • This provides a death coverage of Rs 2,00,000 to the beneficiary in the case of a sudden demise.
  • Other Important Government schemes

National Savings Certificate (NSC)

National Savings Certificate (NSC)

National Savings Certificate (NSC) provides you with a guaranteed return and bears practically no risk as it is sponsored by the Government of India. NSC comes with a set maturity period of 5 years. There is no upper limit on the purchase of NSCs, but under Section 80C of the Income Tax Act, only investments up to Rs.1.5 lakh can earn you a tax rebate.

Make sure you keep a watch on the investment schemes as the government continues to adjust the functionality and the interest rate on a regular basis.

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Small Finance Banks gear up for expansion, higher disbursements

Banking & Finance

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With collection efficiencies slowly moving back to normalcy, small finance banks hope to be in expansion mode in the coming months even though a segment of customers remain impacted by the Covid-19 pandemic.

Along with higher disbursements, branch expansion and the listing exercise for some of them are likely to gather pace in the coming months.

Small finance banks came into existence after 2016 and were set up with the aim of furthering financial inclusion to the unbanked and under-served areas and customers. There are 10 entities that had started SFB operations, of which three are listed.

The total size of balance sheet was ₹1.33 lakh crore, noted a recent report by CARE Ratings based on RBI’s recent Report on Trend and Progress of Banking in India. “Their share in the overall banking system was very insignificant at 0.7 per cent,” it noted.

‘Reset’ opportunities

SFBs say that while collection efficiencies are now normalising, some customer segments and geographies are still lagging behind.

A large chunk of their customer base is from the unorganised sector or are urban workers and amongst the worst hit by Covid-19 and the lockdown, in the form of job losses and salary cuts. For segments like mall and restaurant staff, cab and auto drivers, commercial vehicle owners and housemaids, their salary and jobs are yet to get back to normal, which has meant that their loan repayments too are yet to go back on track.

States like Maharashtra, West Bengal, Assam and Punjab too are lagging in collections in micro banking due to a variety of reasons.

Collection efficiencies have been showing month-on-month improvement, ranging from 80 per cent to 95 per cent for most banks. For the quarter ended December 31, 2020, the three listed SFBs — AU Small Finance Bank, Equitas Small Finance Bank and Ujjivan Small Finance Bank — saw improving collection efficiency across most segments and geographies.

“Collections in non-delinquent accounts are also moving close to pre-Covid levels; as of January 2021, around 95 per cent of customers are paying EMIs as against 91 per cent as of October 2020,” said Nitin Chugh, Managing Director and CEO, Ujjivan SFB.

Equitas SFB reported collection efficiency of 105.36 per cent in December 2020 and billing efficiency of 88.73 per cent. It also said that collections are reaching the pre-Covid level.

AU SFB too reported in its third quarter results that collection efficiencies and activation rates have achieved normalcy across most segments.

Among the unlisted banks, ESAF SFB reported collection efficiency of 94 per cent in January.

“Collection efficiency has not come back fully but with the economy having substantially opened up, reverse migration has also happened,” noted the head of an SFB, adding there are now opportunities to grow and “reset” finances and processes.

 

Renewed credit demand

Banks have reported renewed credit demand across most segments from borrowers, including micro finance, affordable housing, small business loans and personal loans. Provisioning has also been done upfront to ensure that the focus can now be on growth.

Both Equitas SFB and AU SFB have reported net profits for the third quarter of the fiscal and though it reported a net loss, Ujjivan SFB has made significant provisions in the quarter.

Gross non-performing assets ratio has also been contained for all three listed SFBs at less than 2.5 per cent at the end of the third quarter.

Till now, advances have seen muted growth. AU SFB reported 14 per cent increase in advances growth on annual basis, 11 per cent growth on quarter-on-quarter basis in December 2021 quarter. For Ujjivan SFB, disbursements for the third quarter of 2020-21 fell to ₹2,184 crore vs ₹3,403 crore a year ago.

To address issues faced by them, small finance banks plan to set up separate industry body

PN Vasudevan, MD and CEO, Equitas SFB, said the lender disbursed around ₹2,500 crore in the third quarter, which is about 80 per cent of pre-Covid levels, and expects it to grow in the fourth quarter. “As of December, our advances grew by 19 per cent year-on-year and now about 79 per cent of our advances is secured,” he said in an investor call post the third-quarter results.

“Disbursements are more or less back to pre-Covid levels and even exceeded it in January, when we disbursed ₹650 crore of micro loans. Most of the micro businesses are getting back to normal, except a few sectors, even though challenges are there. Over a period, recovery is very promising and demand is also coming,” said K Paul Thomas, MD and CEO, ESAF SFB.

CARE Ratings noted that an advantage that most SFBs enjoy is that they have been paying higher interest rates on deposits to garner funds which, in turn, gets translated on the lending side too. “This can be seen in the returns on advances, which is around 20 per cent and is higher than the other banks’ by 8-11 per cent,” it said.

Small Finance Banks have greater presence in well-banked States, says RBI report

Branch expansion

Branch expansion is also likely to be high on the agenda for most of these lenders. The RBI’s latest monthly bulletin had noted that SFBs have greater concentration of branch network in relatively well-banked States.

While there has been a rapid growth in the branch network of SFBs since their inception, this growth has been markedly concentrated in the Southern, Western and Northern regions, which are known as the relatively well-banked regions in the country, RBI officials Richa Saraf and Pallavi Chavan said in an article in the bulletin.

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