The National Treasury has failed to provide the promised reimbursement of the higher interest rate offered on senior citizens’ fixed deposits to the banks this year creating doubts over the continuity of the scheme from next year onwards, Mirror Business learns.
The coalition regime in the mini-budget presented in January 2015 promised to offer a 15 percent interest rate on senior citizens’ fixed deposits up to Rs.1.0 million for one year, to provide redress to those who live on interest income received on their savings as the prevailing interest rates at the time were very low.
However the extreme fiscal profligacy of the government by way of a massive salary increase for public servants and generous handouts offered as a vote buying technique targeting the August parliamentary elections fast dried up the state coffers.
According to sources, the Treasury has abruptly stopped reimbursing the banks of the additional interest offered on senior citizens from the beginning of this year. The Treasury used to pay the rebate every quarter until the end of December 31, 2015.
Meanwhile, in a letter sent by the Bank Supervision Department of the Central Bank in July 2016, the Director, Bank Supervision, had told the banks that the Treasury had delayed the payment of the rebate due to banks because the Treasury had observed the claims were made calculating the interest rate difference based on the interest rates that prevailed at the beginning of the year.
The rebate must be calculated by the banks and forwarded to the Central Bank each quarter after which the claim is reimbursed by the National Treasury.
However since December 31, 2015, all such claims have piled up at the Central Bank as the Treasury refused to reimburse such claims.
The Treasury has charged the banks of inflating their claims by way of calculating such claims based on interest rates that prevailed at the beginning of 2015, which were extremely low.
The interest rate differential must be calculated based on the senior citizen deposit rate i.e 15 percent and the market interest rate that prevailed at the time of placing a new deposit or renewing an existing senior citizens’ deposit. Nevertheless, the banking sector analysts expect the senior citizen deposit scheme to be discontinued from the forthcoming budget due to such a scheme making less sense when the market interest rates for similar deposits have now reached above 12 percent.
Further it is unlikely that the government would want to continue an extra burden on its already bloated budget.