Savings, term deposits and loan products

For a number of us, regularly saving money can be difficult. Sometimes our jobs are such that we do not earn regular amounts of income. As a result, what we earn is used to meet our regular and one time needs and we believe that what is left is too little to be saved. We feel that keeping aside Rs. 5 at the end of the day does not amount to much. But that’s not true. Deposit collectors in poor areas in Vijayawada, Andhra Pradesh, help their clients, who are mostly women, to save by collecting small amounts like Rs. 5 at the end of each day. They come to the homes or work places of their clients at the end of each day and take the money. Then at the end of 220 days (if the client has actually contributed everyday) they return a lump sum of around Rs. 1000 to the client and keep a fee of the balance Rs. 100 for this service.

While such systems help us to save, we are paying for a savings service instead of getting paid for the money that we save.

Using that example of small savings, let’s take the case of someone employed under the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA). He will earn Rs.. 100 per day for at least 100 days. Now, if he is able to save Rs.. 30 per day during his days of employment, he can collect a total of at least Rs.. 3000. This can be used for times when employment is not available or saved in formal financial schemes, wherein he will receive interest on the money earned.

Sometimes, although we do save small amounts regularly, we do not have a safe place in which to keep this money. There are many examples of people who save by putting money into hiding places within their homes, bury it in the earth, roll it inside hollowed-out bamboo or keep it in clay piggy banks. The problem with these methods of saving is that the money can be lost or stolen or just rot (in the case of notes) due to moisture. In addition, the value of your money will decline due to inflation. There are other risks too. are the least of the problem. People who are aware of your savings – like neighbours, children, alcoholic husbands, etc. may help themselves to the money that you have painstakingly collected.

When it comes to loan products, under traditional systems, there are three ways in which we usually get access to loans. The first is by selling assets that we already hold or expect to hold (like advance sale of crops). The second is by ‘pawning’ assets that we own or expect to own. This method is similar to the first one, where we sell the asset but have the opportunity to buy it back within a pre-decided time frame. But when we do buy it back, we have to pay a hefty premium (a large amount of money over the amount we sold it for). Lastly, we turn to money lenders or borrow from friends and relatives. The problem with this form of borrowing is that we are charged an extremely high rate of interest by the former. In the case of the latter, we run the risk of spoiling relations with friends and relatives, if somehow we are unable to pay them back on time.

Where insurance is concerned, there is very little scope available in the non-formal sector. So, in the case of an untimely death of an earning member of the family, or an expensive illness or damage to home or crops or other assets, we have to turn to our savings or loans.

With the spread of formal financial services such as banks, post office accounts and micro finance organisations, we need not face these unfair, inconvenient or unsafe financial situations anymore.

Banks, insurance companies and rural microfinance now offer a range of different products for people in the rural areas. These broadly include:

• Loans of different amounts and time frames: These loans are given for a range of activities such as agricultural and off-farm activities, asset-building and consumption
• Leasing arrangements for assets: This enables us to make use of the assets that we need at reasonable rates of interest.
• Savings services of different types: These are designed to help us in a wide range of activities from saving small amounts from our household cash-flows everyday to building up lump sum amounts to meet long-term goals
• Pension: Various products are available to enable us to live an economically more comfortable life in our old age
• Insurance: Various types of insurance help reduce risk and improve our financial strength during a crisis
• Remittance transfer services: These help us to receive money from loved ones living far away without the fear that the money can get diverted or misused.

All we need to do is make the effort to learn about the options available to us and take a confident step towards using them.

Savings, term deposits for farmers, women, students

When it comes to formal savings products, we all broadly look for the same features – simplicity and convenience (the product should be easy to understand and easy to use), safety (we should be confident that what we save should be returned to us) and to our advantage (have some benefits over the traditional methods of saving).

Savings at Post Offices

Post office schemes are also called small savings schemes. These are designed to provide safe and attractive investment options to the public and at the same time to mobilise resources for the postal department.

Mahila Samman Savings Certificate, 2023

The two year tenure scheme offers an attractive and fixed interest of 7.5 per cent interest compounded quarterly with flexible investment and partial withdrawal options with a maximum ceiling of INR 2 lakh. The scheme is valid for a two-year period upto 31st March 2025.

Post office savings accounts:

These accounts are very popular as they can be opened at any post office in India with a minimum of Rs. 500. No maximum limit exist.

• Maturity period: There is no lock-in/maturity period, just as in the case of a savings bank account.
• Withdrawals: A minimum of Rs. 50 . No withdrawal will be permitted which effect reducing of minimum balance Rs. 500 
• Interest: Interest is paid at a rate as decided by the Central Government from time to time. It is currently (Jan. 2024) 4.0 per cent per annum.
• Pass Book: As in the case of a bank deposit, depositors are provided with a pass book with entries of all transactions duly stamped by the post Office.
• Tax: Income tax relief is available on the amount of interest that you receive in this account.

For more information, click here.

Post office time deposit accounts

These deposits can be compared to bank fixed deposits and like the post office savings accounts, they can be opened at any post office in India.

• Types of Accounts: Accounts of different maturities are available - 1 year maturity, 2 year maturity, 3 year maturity and 5 years maturity.
• Deposit amount: A deposit can be opened with a minimum of Rs. 1000. There is no maximum limit.
• Maturity period: The deposited amount is repayable after expiry of the period for which it is made viz: 1 year, 2 years, 3 years or 5 years. The money in the deposit can be withdrawn 6 months after the deposit is made, if necessary (with certain conditions).
• Interest: Interest is payable annually. The interest payable vaires from 6.9 % (1 year) to 7.5 % (5 years) (Jan. 2024)
• Pass Book: Depositors are given a pass book with entries of the deposited amount and other particulars, duly stamped by the post office.
• Tax: Income tax relief is available on the amount of interest that you receive in this account.

Post office monthly income accounts:

This account is somewhat like a bank fixed deposit too. Only one deposit can be made.

• Maturity: 5 years. The deposit can be closed after one year, subject to conditions.
• Deposit limits: A minimum deposit of Rs. 1000 has to be made. Maximum investment limit is INR Nine lakh for a single account and INR 15 lakh for a joint account with effect from 1st April 2023.
• Interest: Interest is paid at the rate of 7.4 per cent per annum (Jan. 2024), every monthly.
• Pass Book: The depositor is provided with a pass book with entries of the deposited amount and other particulars, duly stamped by the post Office.
• Tax:  Interest is taxable in the hand of depositor.

National Savings Certificate:

National Savings Certificates are available for purchase at Post Offices.

• Maturity: Period of maturity of a certificate is five Years.
• Deposit limits: Minimum of Rs. 1000/- and in multiples of Rs. 100/- No Maximum Limit.
• Interest/maturity value: The maturity value of a certificate is calculated based on the prevaliling interest rate (7.7 %). (Jan. 2024)
• On maturity: The certificates can be encashed at the post office where it is registered or any other post office.
• Tax: An income tax rebate is available on the amount invested and interest received every year.

Kisan Vikas Patra:

Kisan Vikas Patra are available for purchase at Post Offices.

• Maturity amount / period: The invested amount matures in 115 months.
• Deposits: Minimum of Rs. 1000/- and in multiples of Rs. 100/- No Maximum Limit.
• Tax: No income tax benefit is available under the scheme.
• Interest : 7.5 % (Jan. 2024)

Public Provident Fund Scheme:

Public Provident Fund schemes can be opened at certain designated post offices throughout the country and at certain designated branches of Public Sector Banks throughout the country.

• Maturity period: The account matures after 15 years. It can be continued with or without subscriptions after a block of five years.
• Deposit limits:
  • Minimum INR. 500/- Maximum INR. 1,50,000/- in a financial year.
  • Deposits can be made in lump-sum or in ​installments.
• Withdrawal: Premature withdrawal is allowed every year after 5 years from the end of the year of opening the account.
• Interest: The interest rate payable is notified by the Central Government from time to time (7.1% is the current rate). (Jan. 2024)
• Tax: An income Tax rebate is available on the deposits made and the interest credited every year is tax-free.

For more information on postal schemes, click here.

Micro finance, Self Help Groups and Farmers Clubs

Micro finance is a concept that started in India in the early 1980s. It involves small self-help groups (SHGs) and Non-Government Organisations (NGOs) coming together to provide credit and saving services to people who do not have access to the formal banking system. They undertake these activities more from the objective of bringing about development in areas which need it and less from any profit motive. These organisations are sometimes supported by large government bodies like Small Industries Development Bank of India (SIDBI) and the National Bank for Agriculture and Rural Development (NABARD). Sometimes they are also supported by large trusts set up specifically to make funds available to people at the lowest levels of society.

These organisations – self-help groups, mutually aided co-operative societies, farmers clubs and micro finance institutions - devise unusual means of savings such as group deposits and accounts that accept very small, ad hoc amounts. For instance, they enable monthly or weekly savings at joint-liability group meetings. Here, the people who form the members of the group save from week to week (or month to month). This money is used for lending to people within the group when they require it. Sometimes, NGOs and government organisations also contribute to the kitty of such groups.

Such organisations try to help groups of people plan their entire personal finances with packages of measures, specifically designed for them. Some of them do not treat savings, loans and insurance as separate products but part of a financial solution for an individual.

Nationalised Banks, Cooperative Banks, Regional Rural Banks (RRBs) and Local Area Banks (LABs)

Some banks are set up in the rural areas with the special purpose of funding agricultural and other activities in the rural areas. They give loans to small and marginal farmers, agricultural labourers and rural artisans.

Their savings accounts and savings products are structured to meet the needs of their customers.  They offer their customers the chance to save through regular savings accounts, “no frills” accounts and term deposits.

No frills accounts offered by banks

In a recent move, the RBI – our country’s central bank - has urged the banking community to introduce “no-frills” accounts. These accounts are designed to introduce the concept of banking to those who have no access to it so far. Every bank that offers such accounts has the freedom to design them. However, the basic characteristic remains the same across banks – i.e. no frills accounts have to have a zero or a very low balance requirement with limited transaction facilities. For instance, take the State Bank of India’s (SBI) no-frills account. To open a no-frills account with SBI, you must be at least 18 years or age and earning a gross income of Rs..5000 per month or less. You have to make an initial deposit of just Rs. 50 and you are not required to maintain any minimum balance while operating the account. Your account can hold a maximum of Rs..10,000 as the total value of business connections of the account holder, including other deposit accounts. You receive a passbook, an ATM-cum-Debit card free of cost and you are also able to avail of the cheques facility.

Loan products for farmers, women, students

Each person’s borrowing needs are likely to be different. Studies by a microfinance organisation called SafeSave have found that women need longer-term credit to build assets such as houses, to buy land and lease land, either under their own names or at least jointly. They also need credit to purchase ‘female assets’ such as jewellery, or redeem them from pawnbrokers and moneylenders. They also need access to credit for investment in their small business ventures, which may not be farm related.

Similarly, they found that agricultural workers and farmers need consumption loans to avoid turning to moneylenders in slack and ‘hungry’ seasons. Farmers also need loans during the production season. If they can get loans from formal financial services, it would help to free up significant amounts of money, which would otherwise go towards paying high-interest rates to moneylenders for investment in production.

Lastly, they found that in the category of special needs, households need loans to pay for children’s education and to meet social obligations that are essential in maintaining social capital and the wellbeing of children, particularly daughters after marriage.

Banks and micro finance institutions offer loans for all these purposes and more. Banks offer agriculture loans, mortgage loans, car loans, education loans, gold loans, loans for purchase of land, home loans, personal loans, business development loans and govt sponsored subsidy / low interest loans. Authorized Business Correspondents (BC), sometimes called Kiosk Banks, have been set up in the rural areas to meet the needs of the local people. These offer agriculture and personal loans, amongst others. Microfinance Institutions, Self –Help Groups (SHGs) and Federations, Farmers Clubs, Mutally Aided Co-operative Societies, Cooperative Banks, Primary Agriculture Cooperative Societies (PACS) and Local Area Banks also offer loans to meet specific consumption, income generation and business needs of people in the rural areas. Most of them also offer government sponsored subsidies and low interest rate loans.

Home loan and Subsidy from Government

Pradhan Mantri Awas Yojana (PMAY)

• Credit Linked Subsidy Scheme (CLSS) under PMAY schemes provides a subsidy of upto Rs 2.67 lakh on the interest component reduces the outflow on the home loan. The subsidy amount under the scheme largely depends on the category of income (Economicall weaker section, Low income, Middle income )which you belong to as well as the size of the property unit being financed.
• To access the Subsidy calculator, click here.

Income generation loan and subsidy from Government

Prime Minister’s Employment Generation Programme (PMEGP)

The PMEGP is a credit linked subsidy programme of the Government of India. It has been introduced by merging the two schemes, namely, Prime Minister’s Rojgar Yojana (PMRY) and Rural Employment Generation Programme (REGP). The objectives of the programme are:

• To generate employment opportunities in rural as well as urban areas of the country through setting up of new self employment ventures/projects/micro enterprises.
• To bring together widely dispersed traditional artisans/ rural and urban unemployed youth and give them self-employment opportunities to the extent possible, at their place.
• To provide continuous and sustainable employment to a large segment of traditional and prospective artisans and rural and urban unemployed youth in the country, so as to help arrest migration of rural youth to urban areas.
• To increase the wage earning capacity of artisans and contribute to increase in the growth rate of rural and urban employment.

Pradhan Mantri MUDRA Yojana (PMMY) 

Pradhan Mantri MUDRA Yojana (PMMY) is a scheme for providing loans up to Rs 10 lakh to the non-corporate, non-farm small/micro enterprises. These loans are classified as MUDRA loans under PMMY. These loans are given by Commercial Banks, RRBs, Small Finance Banks, MFIs and NBFCs.

The borrower can approach any of the lending institutions mentioned above or can apply online through this portal www.udyamimitra.in . Under the aegis of PMMY, MUDRA has created three products namely 'Shishu', 'Kishore' and 'Tarun' to signify the stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur and also provide a reference point for the next phase of graduation / growth. 

Schemes catering to minorities

National Scheduled Castes Finance and Development Corporation

This scheme provides concessional finance for setting up of self-employment projects and skill-training grants to unemployed SC persons

National Minorities Development & Finance Corporation (NMDFC)

The NMDFC provides financial support to minorities in areas such as Agriculture & Allied activities, Technical Trade, Small Businesses, Artisan & Traditional Occupation and the Transport & Service Sector

Loans for financing purchase of land for agricultural purposes

The agricultural policy of the Government of India aims to provide a substantial flow of credit to farmers to increase agricultural productivity. Under the direction of the Government of India, banks provide term finance to farmers for development purposes and short term loans for production purposes.  They also finance farmers who wish to purchase land to expand their activities and make existing small and marginal units economically viable.

Loans for Tenant Farmers

• Regarding lending to tenants and oral sharecroppers, RBI has already advised banks to accept certificates provided by local administration/ Panchayati Raj Institutions to testify their status and identity. The Internal Working Group suggests that banks may consider taking, as an alternative, an affidavit explaining their identity and status for loans up to a certain amount (say, Rs. 50,000/-), where field visits and local enquiries do indicate that the tenant/sharecropper has a right to the usufruct of the land. It further recommends that banks may encourage such farmers to form Self-Help Groups (SHGs) to create social capital that could instead be used as collateral for purposes of giving crop loan.
• With banks and financial institutions shying away from lending to tenant farmers, the Andhra Pradesh Government has begun a drive to identify eligible farmers and share the list with banks in the vicinity. To begin with, it plans to issue a loan eligibility card to about 5.55 lakh ‘Licensed Cultivators'. The banks will not seek any security or guarantee for loans up to Rs. 50,000
• With five high security features (such as watermarks which can be seen only under ultra violet light), these cards would be valid for one year and would assign no right on land to tenant farmers. After one year, they will have to renew it or get a new one.
• Apart from making them eligible for loans, these cards would help tenant farmers get access to input subsidies and insurance claims which generally go to landowners.

Specific loans from Micro Finance Institutions

• Micro Finance Institutions are not standardised across the country and a micro finance institution in your area may have its own uniquely structured loans for various purposes. Below are some examples of loans offered by micro finance institutions. These are only to give you an idea of the unique structure and the specific purposes that such organisations cater to. However, you will need to approach the organisations in your area to find out what products are available to you.

Large loans for fishing business

• The South Indian Federation of Fishermen Societies (SIFFS) offers loans to women who travel in groups to distant markets to buy large quantities of fish for drying. They sell such fish locally during the lean season. As a result, this enterprise requires a large initial investment and the returns arrive only after four months.
• Accordingly, SIFFS offers a loan of Rs. 10,000–20,000. The group of women has to pay interest on these loans every month. But they can repay the principal (loan amount) at the end of five months, by which time they have successfully sold off their stock of dried fish.

Loans for adolescent girls and changing the dowry system

• Some organizations involved in the Credit and Savings Household Enterprise (CASHE) project offer a loan product for adolescent girls. The loan, available for both parents, enables the girls to purchase a productive asset to help them earn an income, delay marriage, bring the asset to their in-laws’ house when they do marry. This type of loan aims at not only empowering young women, it also tries to reduce incidence of dowry.

Consumption loans for men, as well as women

• The Area Networking and Development Initiative’s (ANANDI’s) savings-and-credit groups make loans available to both men and women for consumption purposes. Families are given access to loans for either purchasing assets or simply making non-productive expenses (spending on festivals and other occasions, etc.). The groups themselves ensure that a household has the repayment capacity. This is to protect families from falling into the hands of moneylenders.

Source: Portal Content Team