Banks and senior citizens

The origin of social bias in banking in the modern era dates back to the social control of banks introduced in 1967 when the late Morarji Desai was the Finance Minister. Nationalisation of banks in 1969 was the harbinger of greater social objectives for Indian banks.

Attention to the weaker sections was paid leading to not so popular accelerated lending programmes when Mr. Janardana Poojary was heading the Banking Ministry.

The latest Reserve Bank of India credit policy has directed banks to formulate special deposit schemes for senior citizens.

The guideline was necessitated due to the reduction in the Bank Rate leading to across the board reduction in interest on deposits which adversely affected senior citizens whose universal income is from savings most of which are in bank deposits, apart from pension in some cases.

In these days of rising cost of living and medical expenses, the depleting income from investments will pose difficulty in meeting both ends for the aged and lead to penury.

In this context, it was thoughtful on the part of the policymakers to give some special consideration to this section of the society.

Initiatives by banks

Most banks have announced half to one per cent higher rate on deposits of longer periods maintained by senior citizens while a few banks have formulated packages including charge-free collections, remittances, cost-free ATM cards and the like. While these banks deserve special appreciation, let us go into the investment needs of this section of the society.

Needs of senior citizens

As any other investor, those who have retired will have to be guided by the age old guidelines of safety of the corpus; maximisation of yield; liquidity of one's investment and possibilities of capital appreciation.

Except in mutual funds, capital appreciation is not built-in. Bank deposits take care of safety and liquidity. But for maximisation of returns, depositing the entire corpus in banks is not the ideal proposition. A combination of different investments including tax-free investments only can enable one to achieve this objective. However, in order to meet day-to-day expenditure, monthly interest receivable from deposits either in a bank or post office is a must. An insurance-linked deposit scheme can provide the much needed standby support for meeting unforeseen medical expenses.

Need for more reliefs to senior citizens

Since some banks have embarked on insurance business it would help if such banks formulate a suitable scheme for senior citizens combining medical-life insurance-cum-deposit schemes. If necessary, a nominal premium can be charged for such a service. Similarly, cover for accidents and fire and burglary to one's house and other properties, including natural calamities, linked to annual deposits will be a novel scheme for the elderly. Special counters to service senior citizens can be thought of at all branches of banks. More banking plans can be added to the list. The intention here is not to shift the responsibility of the State to the banking sector. But a golden opportunity to open up innovative fora should not be lost by shortsighted approaches relating to vital section of the society whose number is on the increase and the community of bankers can lead the way.

The Central budget for 2001 has been harsh on the salaried class as a whole and the domestic saving sector. A major chunk of such savings comes from senior citizens.

The continuance of tax deduction at source (TDS) on bank deposits, reduction in interest rates on savings deposits/instruments, and reduced exemption limit on interest income have hit pensioners while their outgo on postal charges, electricity, water, conveyance expenses and the like apart from the increase in cost of living and medical expenses are going up. While the RBI guideline has mitigated further hardship for which the Finance Minister had a role, some more reliefs to senior citizens are justified compared to what was available last year.

Each individual has his own requirement. If one has to meet expenses connected with education of children or marriage of daughters even after retirement, capital appreciation is welcome without adversely affecting the other requisites of safety and liquidity. If we can consider 25 per cent of risk each for the four parameters, 50 per cent of one's savings can be set apart for capital appreciation oriented investment, half of which can be for tax exempted categories and the rest could be with banks.

If banks can be a little more innovative and provide ancillary benefits such as insurance, medical and concessional services the percentage of one's investments in banks are likely to go up. Well, everything depends on the individual's fundamentals.

K. Sukumaran

Send this article to Friends by E-Mail

Section  : Business
Previous : Premium price warrior
Next     : Crisil reaffirms Ciba Specialty Chemicals' CP
           rating