Banking On The Age

The India Post Navratnas

1.    Post Office Savings Account (SB)

2.    National Savings Recurring Deposit Account (RD)

3.    National Savings Time Deposit Account (TD)

4.    National Savings Monthly Income Account (MIS)

5.    Senior Citizens Savings Scheme Account (SCSS)

6.    Public Provident Fund Account (PPF)

7.    Sukanya Samriddhi Account (SSA)

8.    National Savings Certification (NSC)

9.    Kisan Vikas Patra (KVP)

The Hallmark: Every scheme offers a guaranteed reward through annualised returns, which can go up to 8%

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If human generations could be described with a technological metaphor, think of the Arora household in Gurgaon as strung in transition between snail mail and the latest digital multimedia messaging service. The first is slow but secure, the second offers instacharm – its enticing, flickering neon itself carrying the innate risk of blinking off without a warning. The senior Aroras give us a picture of how old India saves and invests – the very entrenched habits that made us a savings country. Yes, they like to have an intelligent mix of investments, allocating portions to different schemes – but the Post Office Savings Schemes are a core part of their portfolio. The junior Aroras, meanwhile, want to be part of the heady, higher-risk, volatile equity markets. More, faster, right now.

Ajit Arora, the pater familias, himself analyses it wisely: “Investment habits are a combination of individual choices and what you pick up from your social circle. Over 35 years ago, when I started earning, incomes were low and savings tended to follow a small, modest pattern. The best option was postal schemes. Banks were not public-friendly and imposed so many conditions. Besides, our mindset was different. Our focus was on safe returns, not high returns. But my sons want more returns, and they are ready to take more risks for that.”

As for Ajit Arora himself, while having lived through a changing India, he continued a pattern: even his parents used to access post offices for all their money saving needs, he says. An index of the fact that what we are dealing with here is not a question of momentary choices – as a new-fangled intra-day investor with a phone app may be making – but a whole culture.

The Arora family’s internal variegation will somewhere resonate with almost every Indian family. Until the 1990s, before liberalisation, Postal Saving Schemes were a huge draw – people went to it almost like an economic ritual. It was part of almost every Indian family’s financial plans, regardless of class. Even today, over 19 crore Indians have savings accounts in post offices. That’s 190 million – close to the entire population of Brazil – finding a sense of security in popular schemes like the time deposit scheme or fixed deposit, the monthly income scheme and Sukanya Samridhi account.

A culture takes time to evolve and put down roots in the soil. No surprise, then, to find that India’s savings history legislation is as old as the Indian Postal Savings Schemes. The Government Savings Bank Act was passed in 1873 and the Post Office Savings Bank of India came into existence in 1882.That makes it the oldest savings institution in India.

Pradipta Kumar Bisoi, Secretary at the Department of Posts, elaborates: “We have over a century’s history of being in savings and that’s a benchmark of how people’s money is safe with us. Our products are pocket-friendly – no frills attached and meant for all sections of the society, be it lower income groups or HNIs.”

For the newer generation, many of whom may not be aware of Postal Savings Schemes, here’s a small lowdown. At present, India Post offers nine schemes. These are Post Office Savings Account (SB), National Savings Recurring Deposit Account (RD), National Savings Time Deposit Account (TD), National Savings Monthly Income Account (MIS), Senior Citizens Savings Scheme Account (SCSS), Public Provident Fund Account (PPF), Sukanya Samriddhi Account (SSA), National Savings Certification (NSC) and Kisan Vikas Patra (KVP).

Their popularity may fluctuate, some showing growth and some declining, but all these schemes have one hallmark: they offer a guaranteed reward through annualised returns, which can go up to 8 per cent, while mutual funds do not guarantee any returns as they are exposed to market fluctuations and the inflationary effects of the capital market.

Secondly, with mutual funds, dividends are subject to a distribution tax of around 13 per cent and funds sold after a year of purchase also attract a 10 per cent Long Term Capital Gains tax, while returns are decided on the basis of earned interest, which too is taxable and gets trimmed depending on your personal income tax slab. Also, while mutual funds give you a vast amount of choice, almost like a supermarket shelf, they involve great risk.

Post Office schemes, on the other hand, offer the familiarity and comfort of your neighbourhood kirana store – limited choices, but they are always there. The returns are assured.

Let’s do a quick comparison of post office schemes with what’s offered by public and private sector banks. The savings account interest rate in post offices is actually the highest – at 4 per cent – while banks like SBI, ICICI, HDFC and others offer you 2.5-3.5 per cent, even if they have some frills attached. With recurring deposits, the interest rates offered by other banks vary between 2.50 and 8.50 per cent, while for Post Offices it’s fixed at 5.8 per cent and is updated quarterly. An RD in a Post Office will offer you a loan of up to 50 per cent of your deposit, while banks can ramp that up to 90 per cent. With fixed deposits, Post Offices offer interest rates between 5.5 and 6.7 per cent; banks are at a comparable 5.5-to-6.5 per cent. But the interest rates for senior citizens are the highest in Post Offices – at 7.4 per cent. The highest the banks offer in that bracket is 7.2 per cent. Both Post Offices and banks get some service charges from the government for promoting its schemes like Sukanya Samridhi Yojana and PPF.

But the biggest benefit with the savings instruments of India Post, a kind of bedrock on which the whole edifice stands solid, is that they come with a sovereign guarantee and cannot be liquidated, amalgamated or taken over by any other entity because it is ruled by its own legislation or Act.

Data shows that the present government is not totally in sync with that value; critics would say it seems to be in a mood to “destroy” a public-friendly financial instrument. It has already brought down the interest rates on Post Office RDs from the levels it ruled at in 2011 – that is, a healthy 8.4 per cent to 5.8 per cent now. This declining graph starts around 2016, with a nearly 2 per cent dip being registered since then. Similarly, interest rates on FDs have been brought down from 8.4 per cent in 2014-15 to 5.5 per cent in 2021 – a figure that would seem depressing for many of those 190 million Indians whose sense of financial security hinges on that.

But Bisoi has a counter: “Our interest rates on FDs or time deposit accounts are always higher than what the banks give you because the ministry of finance offers a higher rate of interest than banks, and it’s their direct scheme. Besides, many of our schemes are eligible for tax rebates as they are conceived, drafted and launched by the department of economic affairs.”

And it still comes wrapped in that old comforting security: all the money you deposit in post offices is safe and nobody can say you will get less, Bisoi adds. For example, banks have a Rs 5 lakh cap on insurance in case of crisis, but here it is fully secured.

The real thing that ensures this wide, horizontal spread for Postal Savings schemes across India is the sheer geographical span across which post offices are a physical, tangible presence. There are around 1.5 lakh post offices across the country – that’s six times the spread of even the biggest, most visible public sector bank in India, the State Bank of India, which has around 24,000 branches.

Also, India Post has over 4 lakh employees, making it perhaps India’s third largest employer. It even has 1,000 ATMs – a number that can easily rise. Why then is it such a quiet presence? What is lacking? Publicity? Advertising? Has it been kept dependent almost on an oral transmission of its qualities among ordinary Indians? Why can’t it attract newer converts?

Bisoi is keen to qualify that picture. “We have launched several social media campaigns,” he says. “And at our post offices, we encourage people to come and save with us.” Also, he says the Postal department has taken several measures – like getting NEFT and RTGS licences, and a payments bank – to keep itself updated and meet new generation needs. The department also launched the Post Info app a few years ago. Here, you can check and calculate the kind of returns any deposit can give you. During the Covid pandemic, the department also launched online service requests to provide home-based services for money withdrawal and such like.

There are issues even at the level of the footsoldier. Says Pankaj Kumar, an agent registered with Post Office Schemes for over four decades, “Only postal employees and agents like us who are recruited by the state governments can sell these schemes. We used to enjoy a natural influence earlier, but with new-era investment options and companies like Motilal Oswal, Edelweiss, several wealth managers and startups flourishing, we do not have that bandwidth. There are two other major problems. One, the brokerage or commission offered by mutual fund companies are very competitive compared to Post Office Schemes, so the millennials don’t want to spend energy selling these as it would mean earning peanuts. Secondly, the newer generation is truly more focused on risk than safe returns. People’s perception of money has itself changed: they want to earn money from money while our generation was more about keeping our money safe.”

He adds that the postal department has a good insurance scheme but its rules keep it limited to a few. Rajesh Kumar, Pankaj’s friend and also an agent, explains: “Our insurance scheme is a great product. But there are so many strings attached. It’s only for the salaried class, and that too in ways defined by the postal department – so CAs, lawyers, engineers qualify. The process of establishing your identity is very difficult if you are a  professional in the private sector, so is the documentation process.”

He goes on to add: “If these were simplified, we could have easily doubled the number of policies in a short span of time because our premium rates are the lowest in the market and the bonus is the highest, around Rs 47-48, compared to LIC’s Rs 40-45.” Despite all the rigmarole, the postal life insurance scheme has issued over 50 lakh policies till date, and an average of 2 lakh policies get added to that every year. Rajesh adds that India Post has such huge manpower that, if they truly set their mind to publicity, they can initiate college campaigns or get young brand ambassadors to reach out to the millennials.

Why, then, is it not happening? It’s belief, or a lack of it: larger ideas are at play here than mere viability. Says a finance ministry official, on condition of anonymity, “The Postal Savings Schemes are at a very delicate juncture. The government has made it clear that they do not want to be in the business of business. However, a huge number of Indians—some 10-15 per cent of its population—still look up to this financial institution with trust and pride. It gives them such easy access. That’s not a priority for the private banking sector—look at the performance of government schemes in public and private banks, that’s a testimony to this fact. The government is yet to have a roadmap for Postal Savings Schemes, while it actually offers huge promise, with all the solidity that existed before liberalisation. It depends on the government whether it wants to reap in that advantage or open that up too for the private sector.” The bottomline, then, is that we may be looking at the wrong entity to assess belief. More than the younger generation, with its “risk se ishq” attitude, it’s the State itself that has internalised those dogmas. If they could realise that the older values could be harmonised with the needs of the market, they could unlock all the hidden potential. Maybe somebody should write a mail to them in red letters and put it in one of those red letter-boxes. For the rest of you, the sudden instability brought on by the pandemic may persuade you that security is itself a value worth pursuing.

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Post Offices Vs Banks

• Savings Account interest rate in post offices is highest at 4%, while banks offer 2.5-3.5%

• Recurring Deposit interest rate at post offices is fixed at 8.5%, while banks offer 2.5-8.5%

• An RD with a post office offers you a loan of up to 50% of deposit, while banks can ramp that up to 90%

• Fixed Deposits with post office attract interest rates of 5.5-6.7%, while banks offer 5.5-6.5%

• Senior Citizen savings accounts get 7.4% interest at post offices, while banks offer 7.2%

The Biggest Draw: Every product sold at India Post comes with a sovereign guarantee and cannot be liquidated, amalgamated or taken over by any other entity because it is ruled by its own legislation or Act.

jyotika@outlookindia.com