DEPARTMENT OF BUSSINESS ADMINISTRATION UNIVERSITY OF LUCKNOW PROJECT ON SMALL SAVING MARKET THE INDIAN CONTEXT

(Management of Financial Institutions)
Submitted to: Dr. Ajai Prakash Submitted by: Adison Growar Satye MBA-FINANCE Sem-III Batch- 2011-1013

Ajai Prakash for his constant guidance and support throughout this project. I realized that the degree of relevance of the learning being imparted in the class is very high. . During the project. I would also like to thank my batch mates for the discussions that I had with them. we would like to thank Dr. The learning enabled us to get a better understanding of the nitty-gritty of the subject which I studied. First and foremost. All these have resulted in the enrichment of my knowledge and their inputs have helped us to incorporate relevant issues into my project.Acknowledgement I take this opportunity to convey our sincere thanks and gratitude to all those who have directly or indirectly Helped and contributed towards the completion of this project.

………..10 Bibliography………………………………………..9 Conclusions………………………………………….4 Administered Interest Rates…………………………....7 Advantages and Disadvantages of Savings Accounts…...10 .3 Micro Finance in India………………………………4 Current Small Savings Schemes With Main Features.jjh` k TABLE OF CONTENT Introduction…………………………………………1 Small Savings Schemes …………………………….2 Benefits of savings facilities for the poor..

These schemes are operated through a network of over 1. A “National Small Savings Fund” (NSSF) in the Public Account of India has been established with effect from 1. (i) postal deposits [comprising savings account.4. Administrative Set-up The small savings schemes are administered through the agency of post offices. while both RBI offices and agency banks act as the receiving offices for the 6. deposits and withdrawals by subscribers were made from the public account and interest payments to subscribers and interest receipts from the States were recorded in the revenue account of the Consolidated Fund of India. where a large number of private financial companies have disappeared. The Public Provident Fund (PPF) scheme is operated through post offices as well as selected branches of public sector banks whereas the Deposit Schemes for Retiring Government and Public Sector Employees are operated through nationalised banks only. In the present financial market. (iii) social security schemes [(public provident fund (PPF) and Senior Citizens„ Savings Scheme(SCSS)]. Small Savings offer the best and safest avenue of investment of household savings.000 post offices and 8000 branches of public sector banks. National Small Savings Fund Small Saving schemes have been always an important source of household savings in India. (ii) savings certificates [(National Small Savings Certificate VIII (NSC) and Kisan Vikas Patra (KVP)]. recurring deposits. Page-1 . Small Savings scrips not only yield high returns.1999. As regards GoI Savings Bond. A new sub sector has been introduced called “National Small Savings Fund” in the list of Major and Minor Heads of Government Accounts. time deposits of varying maturities and monthly income scheme(MIS)].5 per cent Savings Bonds (non-taxable) 2003.54. only the agency banks act as receiving offices for the 8 percent Savings Bonds (taxable) 2003. but also are guaranteed by Government and thus completely secure.INTRODUCTION Small Savings Schemes are implemented through the Department of Posts. Deposit Scheme for Retiring Government Employees / Deposit scheme for Retiring Public Sector Employees which also comes under Small Savings Schemes are implemented through State Bank of India in all District Head Quarters. and 15 year Public Provident Fund Scheme is implemented through Head Post offices as well as Banks.

000 in case of joint account Minimum Rs. 2. account can be closed after completion of 6 months but before 1 year with no interest Nil Saving Bank Account 3. Scheme discontinued from July 2004 7% per annum Scheme discontinued from July 2004 Minimum Rs.10 per month returns Rs. No maximum limit Minimum Rs.000 in case of joint account.50 %-5 year Maturity period 8 years 7 months. NRI and HUF account is not permissible. Account can be opened by single individual who has attened the age of 60 years. Maximum equal to total retirement benefit Maturity period 3 years. can be extended for further 5 years One withdrawal up to 50% of the balance allowed after 1 year. Rs. 50 any further deposit in multiple of Rs. any amount in multiple thereof. 1000 and maximum of Rs.16% p.500.1000.000 in case of individual and Rs. denominations of Rs.90 on maturity Maturity after 6 years. premature withdrawal possible after completion of 1 year Section 10 Minimum Rs. withdrawal is possible after 3 years without any discount and without bonus. Can be extended up to three years after maturity. Recurring Deposit Account Nil Monthly Income Scheme 8% per annum plus 10% bonus on maturity Nil Kisan Vikas Patra Time Deposit Money doubles in 8 years and 7 months 6. further deposit in multiple of Rs.3. Maximum equal to total retirement benefit Maturity period 3 years. No maximum limit Minimum Rs. Rs.5.25 %-1 year 6. Premature withdrawal is possible after one year upto 3 years with 5% discount.000.5. up to Rs.1000.000 Liquidity Tax Benefits Section 80C 8. 1. Joint account can be opened in the name of spouce only.100. No maximum limit Minimum Rs.50 %-2 year 7.00.1000.000 in case of single account and Rs. 200. 1. 200. 15. Compounded Half Yearly Rs. No maximum limit.25 %-3 year 7.a.000 and Rs. 5 with maximum balance of Rs. premature withdrawal possible after completion of 1 year Section 10 Page-2 . premature withdrawal is possible.100. Deposit allowed through agents also.000 Minimum Rs. Taxable 7% per annum.300. 100. closure allowed after 3 years with different rate of interest Maturity period is 6 Years.10 per month or any amount in multiples of Rs.600. 100. Section 10 Senior Citizen Savings Scheme Deposit Scheme for Retiring Government Employees 1989 Deposit Scheme for Retiring Employees of Public Sector Undertakings 1991 9% payable quarterly Maturity after 5 years. In multiple of Rs. any amount in multiple thereof.000. Rs.SMALL SAVINGS SCHEMES Scheme National Savings Certificate Rate Denomination and Investment Limits Minimum Rs.728.5 years account can be closed after one year with discounted rate of interest.5% per year Withdrawal anytime without notice.10. No premature withdrawal allowed Maturity after 5 years.

credit and insurance services extended to socially and economically disadvantaged segments of society. The recent Task Force on Micro Finance has defined it as "provision of thrift. Women constitute a vast majority of users of micro-credit and savings services.  Deposits can be an attractive source of funds as their financial costs are normally lower than funds from the interbank market. In-kind savings such as gold.credit and other financial services and products of very small amounts to the poor in rural. From an institutional perspective. In the Indian context terms like "small and marginal farmers".  Small savings are also a more stable funding source than donor funds or rediscount lines from the Central Banks. a large part of micro finance activity is confined to credit only. in general. " rural artisans" and "economically weaker sections" have been used to broadly define micro-finance customers. Virtually all people will save in any given time and face a portfolio decision with regards to different savings options. mobilizing small and microsavings can help MFIs to attain self-sustainability. At present. Micro Finance in India Micro-finance refers to small savings. do not intervene in the day-to-day business as most governments and donors do if they provide funds. jewellery or livestock require time to be converted into cash. for enabling them to raise their income levels and improve living standards".Benefits of savings facilities for the poor savings such as credit facilities are important tools for efficient liquidity management. Page-3 . rate of return and divisibility of savings. The advantage that deposit facilities show over informal savings is a good mix of accessibility to cash. A similar risk of dependence might also exist with larger savers such as better-off people and institutional savers. Small depositors. security. semi urban or urban areas. The former are generally independent from political interests.

 Through a large network of over 5 lakh small savings agents working under different categories viz: · Standardised Agency System (SAS). · Payroll Savings Groups. One Lakh for each of the depositors. 50 in simple and Rs. Tax treatment: Income tax relief is available on the amount of interest under the provisions of section 80L of Income Tax Act. 500 for cheque facility accounts. Commercial Banks. Withdrawals: Any amount subject to keeping a minimum balance of Rs. Two lakhs for joint holders. the credit co-operative societies etc are some of the mainstream financial institutions involved in extending micro finance. 20. · Mahila Pradhan Kshetriya Bachat Yojana (MPKBY). Maximum of Rupees One Lakh for single holder and Rs. · School Savings Banks CURRENT SMALL SAVINGS SCHEMES with MAIN FEATURES:  POST OFFICE SAVINGS ACCOUNTS: At any post office Account can be opened with a minimum of Rs. Regional Rural Banks (RRBs). · Public Provident Fund Agency Scheme. Small Industries Development Bank of India (SIDBI). If depositors have more than one account (single. Page-4 . the balances or shares of balances in all such accounts taken together should not exceed Rs. pension or joint). Interest : Interest at the rate (s) „as decided by the Central Government from time to time‟.Mainstream Micro Finance Institutions National Agricultural Bank for Rural Development (NABARD). There is no lock-in / maturity period prescribed. video as well as print media. Housing Development Finance Corporation (HDFC). PROMOTION : National Savings Organisation (NSO) is responsible for national level promotion of these schemes through publicity campaigns and advertisements in audio. is calculated on monthly balances and credited annually.

Rs.  POST OFFICE RECURRING DEPOSIT ACCOUNTS : Sixty equal monthly deposits shall be made in an account in multiples of Rs. Rs. six lakhs in joint account.Interest accrued on the certificates every year is liable to income tax but deemed to have been reinvested.  POST OFFICE MONTHLY INCOME ACCOUNTS: Minimum: rupees one thousand. Page-5 i. Interest/maturity value : Maturity value of a certificate of any other denomination shall be at proportionate rate. 200 with no maximum limit. . Rs. POST OFFICE TIME DEPOSIT ACCOUNTS : Types of Accounts: · 1 Year maturity. Interest : Interest.000. as amended from time to time. five subject to a minimum of ten rupees. Maximum: rupees three lakhs in case of single and rupees six lakhs in case of joint account. is payable annually. 100. 5000 & Rs. 500.  NATIONAL SAVINGS CERTIFICATE (VIII Issue): Certificates are available in denominations (face value) of Rs. Tax treatment: Income tax relief is available on the amount of interest under the provisions of section 80L of Income Tax Act. 1000. There is no maximum limit for purchase of the certificates. three lakhs in single account and Rs. · 2 Years maturity. „calculated on quarterly compounding basis‟. Income Tax relief : Income tax relief is available on the interest earned as per limits fixed vide section 80L of Income Tax. · 3 Years maturity & · 5 Years maturity A deposit with a minimum of Rs. 10. Deposits in all accounts taken together shall not exceed Rs.

1000. Interest :Interest at the rate.  DEPOSIT SCHEME FOR RETIRING EMPLOYEES OF PUBLIC SECTOR COMPANIES : One time deposit with a minimum of Rs. 1000 to the maximum of the total retirement benefits in multiple of one thousand rupees.Income Tax relief : Income Tax rebate is available on the amount invested and interest accruing every year under Section 88 of Income tax Act. notified by the Central Government from time to time. Income Tax relief : Income Tax rebate is available „on the deposits made‟. Page-6 . . Income tax relief is also available on the interest earned as per limits fixed vide section 80L of Income Tax.000 & Rs. is calculated and credited to the accounts at the end of each financial year. 1000 to the maximum of the total retirement benefits in multiple of one thousand rupees. There is no maximum limit for purchase of the certificates. 5000.500. Rs. Rs. Tax Benefits : No income tax benefit is available under the scheme. Amount deposited under the scheme is free from wealth tax.  DEPOSIT SCHEME FOR RETIRING GOVERNMENT EMPLOYEES : One time deposit with a minimum of Rs.  KISAN VIKAS PATRA : Certificates are available in denominations (face value) of Rs. However the deposits are exempt from Tax Deduction at Source (TDS) at the time of withdrawal.  PUBLIC PROVIDENT FUND SCHEME : Minimum deposit required is Rs. as amended from time to time. Income Tax relief : Interest accrued / credited / paid is fully tax-free. notified by the Central Government from time to time. Rs. Interest credited every year is tax-free. is credited and payable on half yearly basis at any time after 30th June and 31st December every year.000. 500 in a financial year. 50. Interest : Interest at the rate. under Section 88 of Income tax Act. 10. 100. as amended from time to time. as amended from time to time. Rs.

0 5 year NSC 8.25 6.0 5-year SCSS 9. notified by the Central Government from time to time.Interest :Interest at the rate.50 4.00 8. 2012 Instrument Current Rate Proposed Rate(%) (%) Savings Deposit 3.25 7.50 8.0 10 year NSC New instrument 8.2 3 year Time Deposit 7.00 8.50 7.2 Page-7 .0 5 year Recurring Deposit 7.4 PPF 8.00 ( 6 year MIS) 8. Administered Interest Rates for July 1.8 2 year Time Deposit 6. 2011 to March 31.7 5 year MIS 8.5 5 year Time Deposit 7. Amount deposited under the scheme is free from wealth tax.0 1 year Time Deposit 6. Income Tax relief : Interest accrued / credited / paid is fully tax-free.50 8.00 (6 year NSC) 8. is credited and payable on half yearly basis at any time after 30th June and 31st December every year.

Growth in Small Savings Deposits vis-à-vis Bank deposits Page-8 .

This means that if the bank closes or fails. you will receive all money you saved in the bank up to $100.Figure 1: Trends in small saving collections over last twenty year: Advantages of Savings Accounts Savings accounts allow you to earn interest on the money deposited. there usually are no deposit requirements. if you deposit large sums of money.000 that was deposited. If you save more than $100. Disadvantages of Savings Accounts The purpose of a savings account is to save money. is the balance covered by FDIC. a better option might be a money market account or certificate of deposit (CD). Low interest rates on savings accounts may not make them a suitable choice for investing. You can add money to your savings account without worrying about fees or penalty charges for minimum deposits. Page-9 . Some banks only allow a certain number of withdrawals from a savings account within a set time period. If your plan is to make money off your savings. You should check with your bank to make sure it is covered before depositing money. you risk losing any funds over $100.000 are usually covered by the Federal Deposit Insurance Corporation (FDIC). When opening a savings account. Savings accounts that have a balance of up to $100.000 in one bank and it goes under. Another disadvantage of having a savings account.000.

org/wiki/Ministry_of_Finance_(India) 4) .in 3) wikipedia.moneycontrol.com 5) http://www. Small and microsavings are a profitable source of funds if designed appropriately. Empiricalevidence has shown that mobilizing small and microsavings can be a profitable business if built-inincentives instill financial discipline and cost-accountability.nic. 2) planningcommission.thehindubusinessline.com Page-10 .org. Bibliography: 1) rbidocs.rbi.Conclusions: Financial institutions that want to attract small depositors do not automatically drift away from poor borrowers.in/rdocs/PublicationReport. Good experience with small depositors can even encourage financial institutions toconsider them as potential borrowers.

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