The finance ministry on Tuesday said the 8 per cent Savings Bonds scheme has not been closed but replaced by an instrument offering 7.75 per cent rate of interest. “The 8 per cent Savings Bonds Scheme, also known as RBI Bonds Scheme, is not being closed. 8 per cent Scheme is being replaced by 7.75 per cent Savings Bonds Scheme,” Economic Affairs Secretary Subhash Chandra Garg tweeted.
The ministry had on Monday announced discontinuation of the 8 per cent Savings (Taxable) Bonds, 2003 — an instrument that provided attractive returns to savers amid declining interest rates in the economy. These bonds mature in six years and are not tradable. These can be bought by individuals and HUF’s in multiples of Rs 1,000 without any upper limit and the interest income on these bonds is taxable. Market players say that these bonds available at RBI office, is practically only subscribed by HNIs as its too cumbersome for small investors and not many know about them.
In contrast to 8 per cent return on these bonds, government securities of similar six year maturity were trading at yield of 7.24 per cent on Tuesday while the benchmark 10-year government bond ended at 7.38 yield. Former finance minister P Chidambaram had criticised the government from taking away the savings instrument which has been popular with middle class and senior citizens. “Modi Government scraps 8% taxable bonds dealing a severe blow to the middle class. How will the risk-averse average citizen save?” Chidambaram had tweeted. “GoI 8% taxable bonds have been the safe harbour of the middle class, especially retirees and senior citizens, since 2003. Government has taken away their only safety net,” he said.
The government move to replace the Savings Bonds came few days after it lowered interest rates on small savings schemes by 20 basis points for the January to March quarter. As a result of the 20 basis point cut, while the interest offering on public provident fund and National Savings Certificate will come down to 7.6 per cent.
Experts said these steps are in line with the government effort to bring down the administered rate so that banks can also bring their deposit rates down. High rates on small savings and other administered instruments are considered to hinder monetary policy transmission process.