Tag: senior citizens

SBI, BFSI News, ET BFSI

Banking & Finance

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Retail depositors are earning negative returns on their bank deposits and hence, there is a need for reviewing taxes on interest earned, economists at the country’s largest lender SBI have said.

If not for all the depositors, the taxation review should be carried out for at least the deposits made by senior citizens who depend on the interest for their daily needs, the economists led by Soumya Kanti Ghosh said in a note, which pegged the overall retail deposits in the system at Rs 102 lakh crore.

Senior citizens hit most

At present, banks deduct tax at source at the time of crediting interest income of over Rs 40,000 for all the depositors, while for senior citizens the taxes set-in if the income exceeds Rs 50,000 per year. As the policy focus has shifted to growth, the interest rates are going down in the system which pinches a depositor.

“Clearly, real rate of return on bank deposits has been negative for a sizeable period of time and with RBI making it abundantly clear that supporting growth is the primary goal, the low banking rate of interest is unlikely to make a northbound movement anytime soon as liquidity continues to be plentiful,” the note said.

Bull run gives leeway

It said the current bull run in financial markets is possibly a break from the past as households may have got into the bandwagon of self-fulfilling prophecy of a decent return on their investment.

“We thus believe, it is now the opportune time to revisit the taxation of interest on bank deposits, or at least increasing the threshold of exemption for senior citizens,” the note said.

The RBI can also relook at the regulation that does not allow interest rates of banks to be determined as per age-wise demographics, it said.

It can be noted that at present, banks are lending for as low as under 7 per cent for retail loans and have been public with their preference to lend to highly-rated corporate borrowers, where the lending rates get very competitive.



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Retail depositors earning negative returns; relook taxation on interest: SBI economists

Banking & Finance

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In a note, which pegged the overall retail deposits in the system at Rs 102 lakh crore, the economists led by Soumya Kanti Ghosh said: "If not for all the depositors, the taxation review should be carried out for at least the deposits made by senior citizens who depend on the interest for their daily needs."

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Should you go for Shriram Transport FDs that offer up to 7.5% interest?

Personal Finance

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Shriram Transport Finance Company (STFC) revised the interest rates on its fixed deposits last month. The company now offers 6.5 per cent and 6.75 per cent per annum, respectively on its one-year and two-year deposits. Three-year deposits can fetch you 7.5 per cent interest per annum. Senior citizens get an additional 0.3 per cent over these rates. Besides, the company offers an additional 0.25 per cent on all renewals.

At the current juncture, the STFC FD rates seem better than those offered by most banks and other similar-rated NBFCs. Though the company has never defaulted on its deposits, its current financials indicate some near-to-medium term stress in operations. Hence, investors with a high-risk appetite who seek additional returns, can invest in this FD. Do note, that unlike FDs offered by banks, those by NBFCs are not covered by the DICGC’s ₹5 lakh cover.

Investors can choose from monthly, quarterly, half yearly or annual interest payout options or the cumulative option where interest gets compounded and is paid at the time of maturity.

The minimum deposit amount is ₹5,000 and in multiples of ₹1,000 thereafter.

Investors who opt for the online route can choose from additional tenure deposits such as 15-month and 30-month deposits. The company offers 6.75 per cent and 7.5 per cent, respectively on such tenures, same as that offered on its two and three year deposits, respectively.

How they fare

As interest rates have bottomed out, rates are likely to inch up in the next two or three years. Hence, at the current juncture, it will be wise to lock into deposits with a tenure of one or two years only.

Currently banks (including most small finance banks) offer rates of up to 6.35 per cent per annum for one-year deposits and up to 6.5 per cent for two-year deposits. Suryoday Small Finance Bank however, offers 6.5 per cent on its one-to-two year deposits (both inclusive). While the rates offered by STFC are at par with those of Suryoday on the one-year FD, the former offers superior rates on deposits of other tenures. The rates on STFC’s deposits are also superior to those offered by similar-rated NBFCs.

The company’s FDs are rated FAAA(Stable) by CRISIL and MAA+ (Stable) by ICRA. Other AAA-rated NBFCs offer interest rates in the range of 5.25 to 5.7 per cent on their one-year deposits and up to 6.2 per cent on their two-year deposits.

About STFC

The company has a 42-year old track record of providing finance for commercial vehicles, predominantly in the high-yielding pre-owned HCV segment.

As of June 2021, its assets under management (AUM) totalled ₹ 1.19 lakh crore (up 6.75 per cent y-o-y ). About 90 per cent of the AUM was towards pre-owned vehicle loans and the rest was towards new vehicle loans (6 per cent), business loans (1.6 per cent), working capital loans (1.9 per cent) and other loans (0.1 per cent).

STFC has a strong branch network of 1,821 branch offices and 809 rural centres covering all states.

Given its heavy reliance on fleet and transport operators (HCV and construction equipment comprise about 48 per cent of its AUM and medium and light commercial vehicles constitute another 25.3 per cent), the company saw deterioration in asset quality in the recent quarter on account of lockdowns. In the June 2021 quarter, its gross Stage-3 assets worsened to 8.18 per cent from 7.06 per cent in the March 2021 quarter.

Even gross Stage-2 assets, which may slip to Stage-3 in the coming quarters, spiked to 14.53 per cent of the AUM compared to 11.9 per cent in the March quarter.

However, the company has a decent provision coverage ratio of 44 per cent and about 10 per cent for Stage 3 and Stage- 2 assets, respectively. Its is due to the spike in provisioning (up 35 per cent y-o-y) that the company saw a 47 per cent (y-o-y) drop in its net profit to ₹170 crore in the June 2021 quarter.

Besides, its proven past track record, strong capital and liquidity position offer additional comfort.

The company’s Capital to Risk Weighted Assets Ratio (CRAR) stood at 23.27 per cent in the June 2021 quarter and it has a positive asset liability mismatch in all buckets—ranging from one month to 5 years.

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Why POMIS is a safe monthly income option

Personal Finance

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If you are looking for low-risk investment options that offer regular monthly income, consider post office monthly income scheme (POMIS). This product offers higher interest rate compared to similar fixed deposit (FD) options from banks and is a government-backed savings scheme with a tenure of five years.

The minimum investment amount is ₹1,000. The maximum limit is ₹4.5 lakh in a single account and ₹9 lakh in a joint account (up to three adults). The account can be opened from any post office using identification and address proof, PAN card and two recent photographs for KYC requirements.

Decent returns

POMIS scores over other similar investment options such as fixed deposits of similar tenure offered by banks. The rate of interest in POMIS is reset periodically by the government. The scheme currently offers interest rate of 6.6 per cent per annum for the deposits made up to September 30, 2021. This is relatively higher than the interest rates offered by most banks for their five-year FDs with the monthly pay-out option, including SBI (up to 5.4 per cent) and HDFC Bank (up to 5.3 per cent). Even the small finance banks (SFBs), which usually offer higher interest rates, too fade in front of POMIS. Banks such as Jana, Equitas, and AU SFB offer interest rates up to 6.5, 6.25 and 5.97 per cent, respectively.

While bank deposits of up to only ₹5 lakh are secured by the deposit insurance, POMIS comes with implicit government backing. This comparison becomes relevant when POMIS joint account is opened with investment above ₹ 5 lakh.

On the taxation front, both POMIS and bank FDs do not enjoy any tax benefit– either on investment or income earned. However, there is no TDS on the interest pay-out from POMIS unlike on FDs.

Premature withdrawal is allowed in POMIS only after a year, but you have to pay a penalty for doing so, similar to bank FDs. If encashed between the first and third year, a deduction of 2 per cent is made on the deposit amount. Between the third and fifth year, the rate reduces to 1 per cent.

Options for seniors

If you are a senior citizen looking for monthly income (SCSS offers only quarterly payout), you may want to compare it with another safe investment option – Pradhan Mantri Matri Vandana Yojana (PMVVY). For financial year 2021-22, the PMVVY scheme shall provide an assured pension of 7.40 per cent per annum (same as SCSS) payable monthly for all the policies purchased till 31st March, 2022. The total investment amount under this is up to ₹15 lakh for a single account. If a couple chooses to invest, both together can invest up to ₹30 lakh.

Though PMVVY scores over POMIS in terms of interest rate, the latter can be your option if you are looking for shorter tenure, liberal lock-in norms and lower minimum investment amount. PMVVY has a policy tenure of ten years and pre-mature exit is allowed only under exceptional circumstances (with penalty) including treatment of any critical/terminal illness of self or spouse. Besides, PMVVY requires a minimum investment of about ₹1.5 lakh. Note that both POMIS and PMVVY have similar tax treatment on investment and interest and no TDS will be deducted on pay-outs.

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Why HDFC deposits are a safe option for senior citizens

Personal Finance

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The prevailing low interest rates on deposits have been pinching senior citizens the most. Seniors who are more keen on capital conservation than higher interest rates can consider the deposits from HDFC. Currently, HDFC offers seniors 6.1 per cent interest for 24-month deposits

Depositors who wish to get regular payouts can opt for the non-cumulative option, with monthly/quarterly/half yearly or annual payouts. Those who don’t need regular payouts, can instead opt for the cumulative option which offers annual compounding.

The minimum amount that can be deposited with HDFC for a fixed deposit is ₹20,000.

While the deposits of HDFC, an NBFC, are not covered by deposit insurance (bank deposits of up to ₹5 lakh are covered by DICGC), its 40-year plus stable business provides significant confidence. Besides, the company has been maintaining a AAA rating on its deposits for more than 26 years.

How they fare

As interest rates have almost bottomed out, they are likely to inch up in the next two to three years. Hence, at the current juncture, it is wise to lock into deposits with a tenure of one or two years.

For such tenures, HDFC offers seniors better interest rates than those offered by prominent banks such as SBI (up to 5.6 per cent), HDFC Bank (up to 5.4 per cent), ICICI Bank (up to 5.5 per cent) and Axis Bank (up to 6.05 per cent), which are considered safest options among banks.

Other private sector banks and small finance banks, however, offer even higher rates (up to 7.5 per cent) for one to two year deposits. The recent debacles at YES Bank and other co-operative banks have stoked fear in the minds of depositors. Given that, seniors may prefer safety of capital over the lure of higher rates.

HDFC also offers better rates compared to corporate FDs with similar ratings from other NBFCs such as LIC Housing Finance, that offers up to 5.9 per cent for a tenure of up to 2 years.

About HDFC

Incorporated in 1977, HDFC, a housing finance company currently offers loans to individuals (comprising 76 per cent of the loan book) and corporates (6 per cent). HDFC also lends for construction finance (11 per cent) and lease rental discounting (7 per cent).

With an outstanding loan book of ₹,52,167 crore as of December 2020, HDFC is India’s largest housing finance company. HDFC’s non-performing assets (proforma) are contained at less than 2 per cent. In addition to that, the company’s provisions (cumulative including those related to covid) cover up to 2.56 per cent of the loan book exposure.

As at the end of December 31, 2020, HDFC’s capital adequacy ratio stood at 20.9 per cent, well above the regulatory requirement of just 14 per cent.

HDFC also has several financial subsidiaries –prominent ones among them are HDFC Bank, HDFC Asset Management Company, HDFC Life Insurance, HDFC Credila and HDFC Ergo. Its consolidated profits at the end of the first nine months of FY21 stood at ₹1,33,900 crore.

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Indian national sentenced to three years in US federal prison for call centre fraud

Banking & Finance

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An Indian national from Gurugram has been sentenced to three years in federal imprisonment on charges of call centre fraud that intended to cheat Americans of millions of dollars, a US attorney said.

Sahil Narang, 29, who was in the United States illegally at the time of his arrest in May 2019, is described in court documents as a key participant in a sophisticated so-called Tech Fraud and Refund Fraud online telemarketing schemes that targeted technologically unsophisticated computer users, usually senior citizens.

Narang had pleaded guilty on December 11, 2020, to conspiracy to commit wire fraud and 10 counts of wire fraud. He was sentenced on Wednesday to 36 months in federal prison to be followed by three years of supervised release, said the Acting United States Attorney Richard B Myrus.

According to federal prosecutors, Internet pop-up advertisements were used in the Tech Fraud scheme to deceive computer users into believing that they needed computer protection services.

The pop-up ads provided a telephone number to call and when the victims dialled the number, they were routed to call centre operators who perpetuated the lie that malware had been detected on the victims’ computers. They offered the victims supposed computer protection services at exaggerated prices.

In the Refund Fraud scheme, call centre operators telephoned those who had fallen prey to the Tech Fraud and offered to refund the sum previously paid.

Through manipulation that usually involved the display of false bank account balances on the customers’ computer screens, the operators convinced the victims that sums far in excess of the refund amount had accidentally been deposited into the victims’ accounts.

As the victims had not in fact received any money, those who “returned” money were actually sending more of their own money to the fraudsters, federal prosecutors said.

According to information presented to the court, Narang and others worked together to manipulate thousands of callers employing the Tech Fraud scheme, seeking to obtain from them an estimated $1.5 million to $3 million.

An FBI investigation determined that over a nine-month period Narang routed on average more than 70 calls to call centres every day. It is also estimated that Narang’s Tech Fraud scheme was successful 30 per cent of the time.

In round two of the scheme, the Refund Fraud scheme, executed during the same nine-month period, Narang and others associated with call centres sought to obtain from their victims cumulatively $560,900.

The FBI investigation identified at least nine individuals who fell victim to the Tech Fraud Scheme at a total loss of $110,900, which the FBI was able to intercept and return to the victims. During the investigation, the FBI interceded and prevented loss when a tenth victim was on the verge of losing up to $450,000 to the fraudsters.

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Is PMVVY better than other senior citizen schemes

Personal Finance

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The relentless fall in India’s interest rates over the last six years has been hard on retirees and regular income seekers. For seniors, exploring special government schemes before bank deposits or debt mutual funds makes a lot of sense, as they offer superior returns with high safety. We take stock of the modified Pradhan Mantri Vaya Vandana Yojana (PMVVY) and stack it up against competing avenues.

Features

PMVVY is a guaranteed pension scheme offered exclusively by the LIC. Open only to individuals who have completed 60 years, it promises regular pension payments at a monthly, quarterly, half yearly or yearly frequency in return for an upfront investment (called a purchase price).

This scheme which was set to expire in March 2020, was modified and extended upto 31 March, 2023. The scheme’s return has been aligned to that on the post office Senior Citizen’s Savings scheme, with a cap of 7.75 per cent. For FY21, the return is 7.4 per cent. It will be revised in FY22 and FY23 if SCSS rates change. If you invest before March 31, 2021, your return will be 7.4 per cent for the entire 10 years.

While this is due for reset on April 1, it appears unlikely that it will be hiked, given the premium over market interest rates.

PMVVY sets minimum and maximum limits on your investment at ₹1.56 lakh and ₹15 lakh respectively. If you’ve invested in the earlier version of PMVVY, you won’t be allowed to invest more than ₹15 lakh in both versions put together. The scheme guarantees pension payouts for 10 years, with a return of principal at maturity. Should the investor die within 10 years, beneficiaries will get back principal. Premature exit with a 2 per cent penalty on principal is allowed in case of critical or terminal illness of self or spouse. Investors can avail of loans (up to 75 per cent of the investment). The scheme enjoys no tax benefits, except for GST exemption on principal.

How it compares

To Immediate annuity plans: LIC and other insurers offer immediate annuity plans- where you can get a lifelong pension against a lump sum upfront investment. The PMVVY offers better pension rates than them. A 60-year old buying LIC’s Jeevan Akshay VII, for instance, will receive an annual pension of ₹71,210 under the return of purchase price option versus ₹76,600 under PMVVY. Under Jeevan Shanti, where he needs to defer his pension by a year, he would receive ₹54,900.

For those seeking liquidity, the PMVVY’s 10-year lock-in may seem more palatable than the lifelong lock-ins of other immediate annuity plans. PMVVY waives GST while immediate annuity plans levy it at 1.8 per cent of the purchase price.

The PMVVY however does suffer from some negatives. The ₹15 lakh cap on total investments restricts your monthly pension to ₹9,250. PMVVY offers the same pension rate for all subscribers above 60. In other immediate annuity plans, pension rates rise substantially with age. Under Jeevan Akshay VII, a 70-year-old can take home 30 per cent more pension than a 60-year old with an identical purchase price.

To Senior Citizens Savings Scheme: The SCSS from India Post allows seniors above 60 to deposit upto ₹15 lakh with a guaranteed quarterly payout at 7.4 per cent per annum. Those above 55 who have taken VRS or have retired can park retirement proceeds in the scheme. Interest rates on SCSS are reset quarterly by the Government. The scheme carries a 5 year lock-in, with initial investments eligible for section 80C benefits. The interest is taxable. The scheme allows premature withdrawal but with a penalty.

When you are investing close to the bottom of a rate cycle like now, SCSS with a 5-year lock-in can help you secure better rates more quickly than PMVVY.

PMVVY is also constrained by the cap of 7.75 per cent on rates. SCSS’ facility to withdraw without any conditions attached is a big plus for seniors looking to take out money for emergency needs or to switch to better rates after one year.

The 80C benefit can help seniors meet their tax saving goals along with securing regular income.

SCSS does not offer a monthly pension option and does not facilitate loans. However, incomes from both SCSS and PMVVY are liable to tax at your slab rate.

To bank deposits: One-to-five year deposits with leading banks today offer rates of 5-5.5 per cent. Small finance banks offer 7-7.5 per cent. But PMVVY is safer than small finance banks as it is LIC and government-backed. You can also get predictable pension payouts for 10 years without worrying about rate moves.

In a rising rate scenario, parking in upto 1 year bank deposits can help you benefit quickly from higher rates.

But given the gap between the present PMVVY rate of 7.4 per cent and deposit rates of leading banks, it may be some time before deposit rates catch up.

Therefore decide between PMVVY and bank deposits based on the 10 year lock-in.

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

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