Mixed response to PPF rate cut

MUMBAI, JANUARY 14: Even as the government signalled a fall in general interest rate level by slashing the rates on public providend fund ...

MUMBAI, JANUARY 14: Even as the government signalled a fall in general interest rate level by slashing the rates on public providend fund PPF and small saving schemes by one percentage point, commercial banks have adopted a wait-and-watch policy before announcing a reduction in lending and deposit rates. However, the rate cut was flayed by salaried class and pensioners across the board.

Though bankers said it was a welcome move, they said they would review the situation at a later stage. 8220;We8217;ll have to wait and watch and see as deposit rates are not as high as this,8221; said a senior official of State Bank of India. Said Unit Trust of India chairman P S Subramanyam: 8220;The cut in interest rates would help the equity market and the corporate sector.8221; Mutual funds are also expected to attract more funds.

The reduction in PPF rates follows a pre-budget meeting of banks and financial institutions with Union Finance Minister Yashwant Sinha. Banks and FIs had demanded a two per cent reduction in interest ratesin order to enable the overall interest rate levels in the economy to be brought down.

However, salaried class and pensioners flayed the government move saying 8220;it was a retrograde step not in tune with realities8221;. 8220;PPF and small saving schemes were the only safest investment avenue for common people. The rate cut will affect the income of common salaried people,8221; said an employee of a private firm.

8220;Big industrialists who have already defaulted a huge amount of bank loans will be major beneficiaries of the PPF cut. The total non-performing assets NPAs of the banking system work out to Rs 58,000 crore. The government should take immediate steps to recover this huge NPA instead of cutting the interest rate on small saving schemes. This is a pro-rich policy of the government,8221; said the leader of a bank union.

A whopping sum of Rs 3,30,000 crore is invested in various provident funds and government small savings schemes on which the government has to bear the burden of paying interest. Dealers saida realignment in the interest rate structure was imminent after last year8217;s three cuts in banks8217; cash reserve ratio CRR lowered it to nine per cent, increasing the net interest payable by the government. The future funding of government deficit was unclear, analysts said.