The government is likely to increase the
lock-in period for Public Provident Fund (PPF) by at least two years,
reports ET Now.
According to ET Now sources in the Finance Ministry, those who invest in
PPF will be able to withdraw after 8 years, as against the current 6-year
lock-in period. The government is also likely to increase the tenure of PPF
from 15 years to 20 years.
"While it will be up to the saver to opt
for either a 15-year or a 20-year saving period, the government will look to
lure people with a higher interest
rate for the 20-year tenure, under Section 80C," reported ET Now.
"This implies that if the saver is willing to invest in PPF for 20 years,
the subsequent tax benefit will be higher," the channel said.
According to ET Now, the government is
considering this move in order to ensure a stable source of infrastructure
funding.
Meanwhile the RBI has said that unbreakable
high value fixed deposits will soon earn higher rate of interest. Depositors
who place their savings with a bank earn differential rates of
interest based on the size of deposit, less than Rs 1 crore and above Rs 1
crore, and the longer the period, the more the interest is. Additionally,
deposits up to Rs 1 crore can be withdrawn prematurely, resulting in
asset-liability mismatch.
To correct this skew between the interest
earned on loans and that paid to depositors, the RBI has allowed banks to offer
deposit schemes up to Rs 1 crore, which cannot be broken prematurely, so-called
non-callable deposits, but which can attract different rates of interest. This
opens the prospect of retail depositors, who opt for such deposits, to earn a
slightly better rate of interest than on a deposit which can be broken, or a
callable deposit.
At present, all deposits accepted from individuals and a Hindu Undivided Family of up to Rs 1 crore can be withdrawn prematurely, leading to asset-liability mismatches in banks.
The RBI's latest decision is one of the major steps in the direction of interest rate rules linked to deposits, after the central bank allowed banks to offer floating rates on deposits a decade ago. The central bank will issue detailed guidelines soon. Premature withdrawals make banks' asset-liability management difficult.
At present, all deposits accepted from individuals and a Hindu Undivided Family of up to Rs 1 crore can be withdrawn prematurely, leading to asset-liability mismatches in banks.
The RBI's latest decision is one of the major steps in the direction of interest rate rules linked to deposits, after the central bank allowed banks to offer floating rates on deposits a decade ago. The central bank will issue detailed guidelines soon. Premature withdrawals make banks' asset-liability management difficult.
Source:-The Economic Times
