Does it count what a Postmaster observes ?

Dear Comrades,

Just 3 years back, I had written an article titled “Does it count what a Postmaster observes ?” which was published   in Postal Crusader ( monthly journal of NFPE ) of November, 2008 issue. The  recent approval by the Govt. bringing changes in POSB schemes prompted me to reproduce the said article for information of all.

Does it count what a Postmaster observes ?

( Published in Postal Crusader of November, 2008 issue)

 Bruhaspati Samal

Secretary, AIPEU,Gr.-C

Bhubaneswar Division

 Since working in Utkal University MDG, I frequently come across through high profile academicians.  During the last three years, what I have experienced, the  professors / readers / lectures especially  from the Department of Economics, Commerce, MFC, MBA etc. and other regular customers query a lot before investing under a fixed deposit scheme of POSS. Illustratively, a couple of week ago Professor Pattnaik attended and asked, “ Dear Postmaster , I have around  rupees ten lakh with me which have been collected from stock market and mutual funds. As you know, the stock market is facing a tough time now. Even the debt oriented mutual funds are giving negative and low returns. Since, this is tied to a global crisis and may take at least a year to recede and better times to return, I am planning to park my money in short term fixed deposit schemes, preferably for less than one year in your Post Office since I may require to withdraw some amount  during January, 2009 for my daughter’s marriage and some amount during June, 2009 for my son’s admission to Engineering courses . Will you please explain the rates of interest under various Fixed Deposit ( FD ) schemes  including merits / demerits and terms / conditions for premature encashment under emergency ground?”

“ Sorry Sir ! We have no such FD scheme less than a year. However, in  1 year Time Deposit  Account, you may earn interest  @ 6.25 % per annum compounded quarterly with locking period of six months. In case of premature closure after six months no interest will be paid ” – I replied.

“Quite astonishing ! Even not S B interest will be paid for the fixed period of six months ?” – he enquired.

“No sir” – I told.

“What’s about 2 year and 3 year  and 5 year Time Deposit Scheme then ?” – he enquired further.

I explained, “These  will respectively earn interest @ of 6.5 % , 7.25 % and 7.5 % per annum compounded quarterly but incase of premature closure, similar to 1 year TD Account, no interest will be paid if withdrawn prematurely after 6 months but before expiry of one year. Where a deposit  in a 2 year, 3 year or 5 year account is withdrawn prematurely after the expiry of one year from the date of deposit, interest will be paid for completed years but 2 % less than the rate specified  for deposit of 1 year, 2 year and 3 year  respectively as the case may be”. 

Professor Pattnaik became very much irritated and groaned, “ I feel there is no justification in investing under POSB Scheme.”

 Why Sir ? – I asked. 

Dear Postmaster ! – he stated showing me a big chart as follows containing rates of interest  offered by various banks under different investment schemes  , “ Perhaps you don’t know the rates of interest the banks are now offering . Even, I can earn up to 10.60% per annum  on  a fixed investment  for one year only and the interesting flexibility factor is that at all I opt for premature closure , the previous scheme already opted for  will be automatically converted to my advantage.”

Bank	46-90 days	91-120 days	181-270 days	1-2 yr.	2-3 yr.	3-5 yr.	Special tenure rates	Bank	91-120 days	181-270 days	1-2 yr.	2-3 yr.	3-5 yr.	Special tenure rates
S B I		7.50	8.50	10.00	9.50	9.75	1000days -10.50	HDFC	7.00	8.00	9.00	9.50	9.50	6 mths 15 days / 9 mths 15 days / 1 yr. 15 days – 10.50 & 2 yr. 15 days-10.00
State Bank of Travancore	5.25	7.75	8.50	10.00	9.80	9.75	400 days – 10.60	Canara Bank	7.50	8.75	10.50	9.75	9.50
Syndicate Bank	5.25	6.00	6.5	10.25	9.75	9.75	400 days – 10.25	Union Bank	7.00	9.05	9.75	9.50	9.50	900 days – 10.50
Allahabad Bank	6.00	8.00	8.25	8.25	9.75	9.25	365 days – 10.00	Karnataka Bank		8.50	10.60	10.60	11.00	365 days – 10.60
P N B		7.00	8.5	10.5	10	9.75		Axis bank			9.25	9.00	8.00	180-364 days=7.5-8.5
ICICI		6.25	7.50	9.50	9.50	9.50	390/ 590 /  890 days – 10.50	I O B			9.50	9.50	9.00	1825-3650 days=9.00

 

I became startled to see the chart. Alas! 6% for just 46 days and 10.50 % for one year. Oh God ! Will anybody opt for POSS with 6.25 to 8 % per annum – I murmured.  Even to woo the customer, I tried my best and requested, “ You see Sir ! We have no TDS from interest. What we have is quite transparent and do not bear either any hidden cost or risk. The operational procedure is very simple. There is no need of identification etc. for opening the account. If you are not interested for TD, you may opt for Monthly Income Scheme which will yield 8% per annum payable monthly for a period of 6 years  or you may invest in  6 year National Savings Certificate yielding Rs.160.10 per Rs.100 and  avail Tax benefit under Section 80 C or Sir, you may double your money in 8 years 7 months under Kisan Vikas Patra. ” 

He just laughed and taught me the principles of Financial Management.  “With an expectation to earn high I do keep interest for investment – he told me – Where there is more risk, there is more profitability – Don’t you know?”

Risk and profitability go side by side – I recalled.  The traditional mindset for investment has now  been changed. People are accepting more risk for earning more and as I realized people are becoming less interested for POSB Schemes.

Just during the course of discussion, Professor Dash of Economics Department entered.

“Good Morning Sir !” – I requested him to sit.

“Very Good Morning. How are you ?” – Dr. Dash smiled and took his seat.

“Fine Sir” – I replied.

“And Professor Pattnaik !  Did I disturb you ?” – asked Dr. Dash.

No. No Sir – Professor Pattnaik  replied – “ I was just discussing with the Postmaster regarding Post Office Fixed Deposit Schemes with a comparison to that of different banks. I am quite fortunate to have you right at this moment  to guide me properly in this regard. Will it be wise to opt for short term fixed deposits both for safety and sound return when the corporate world is looking a bit foggy making the liquidity tight and it is expected  to remain so at least for next several months during this period of global financial crisis?”

Dr. Dash an eminent economist and a very good investment planner stated, “ When inflation touches 12% and markets down, bank fixed deposits with 9 – 10.60 % interest look attractive. But you should be clear that such rates of interest advertised are only the pre-tax returns. So, subject to deduction of tax, if you are in 30%  tax bracket , the 10% return from an FD becomes 7% and this is where FDs lose out. You need to look at  post-tax returns. When things are not going well due to high inflation  you should return to tested investment strategies.”

Turning towards me , Dr. Dash asked, “ Do you have the comparative statistical figures of recent years  on investment in FDs in your Department ?”

Certainly Sir ! – I replied showing the figures for Odisha Circle available with me. The total collection under all heads of POSS in Odisha Circle for the year 2005-06, 2006-07 and 2007-08 were Rs.30225929414/-, Rs.27621940762/- and Rs.23973620528/- . Thus there is a serious decline in collection to the tune of Rs.2603988652 i.e. 8.62 % during 2006-07 in comparison to the year 2005-06 and to the tune of Rs.3648320234 i.e.  15.22 % during 2007-08 in comparison to the year 2006-07. The reasons for such decline are nothing but  low rate of interest for POSS and availability of many new Savings Scheme in commercial banks at higher rate of interest.( As replied by the Chief PMG, Odisha Circle to the Parliament Starred Question D No. 531 for answers on 20.10.2008 regarding declining investment of Postal Savings Scheme asked by Hon’ble M P Sri Naveen Jindal, M.Raja Mohan Reddy and Nikhil Kumar).

Why doesn’t then your Department consider introduction of short term schemes to suit to the need of the customers  declaring interest at par with banks  to exist in the current financial market – Dr. Dash asked me ?

You see Sir ! – I replied, “The Post Office Savings Bank, in spite of being the oldest and the largest banking institution in the country, functions as an agency of the Ministry of Finance, Government of India. The Ministry of Finance pays an annual remuneration to the Department of Posts for the performance of Savings Bank function. While the banks in India enjoy several policy changes which give them a free hand to fix prices of their products and services and also help boosting their liquidity, the Department of Posts has no flexibility. As a result, the rates of interest on different saving schemes offered by the banks in India presently differ highly diverting the customers from POSB.”

“Why don’t you people then demand for granting functional autonomy and financial independence to the Postal Services Board at par with Railway Board or Telecom Commission ?” – questioned Dr. Dash

“You are very much correct Sir” ! – I replied – “You might be aware that the Social Audit Panel headed by the former Chief Justice Sri P N Bhagawati appealed to the Government to allow freedom and  flexibility to the Postal Department so that it could restructure itself and operate competently  with functional autonomy and financial independence  having a separate budget and control  by the Department of Posts .  With a view to pressurize the Govt. to act accordingly, six lakh postal employees of India under the banner of National Federation of Postal Employees and Federation of National Postal Organizations issued notice on 09.04.2007 including other genuine demands  to the Secretary, Department of Posts to go for Indefinite Strike with effect from 24.04.2007. We demanded, inter alia for complete take over of Post Office Savings Bank and Postal Life Insurance by the Postal Department renaming Postal Services Board as Postal Operation Board and to accord the same status  as in the case of Railway Board. But as  a matter of signing of an agreement in between the Staff Side and Official Side   on 19.04.2007 with assurance to look into case of complete take over of POSB since Post Office Insurance Fund was already under consideration, the Indefinite Strike programme was deferred. At this point of time, when the employees are fighting for existence of the Department of Posts, I would like to urge upon aware citizens like you to  kindly join hands with us and submit public petitions and appeals to Govt. of India to rethink on this grave issue so that the oldest and the largest banking institution in the country earning 40 % of its total revenue from POSS and contributing to about 7% of India’s GDP (Final Report of the World Bank Study, August 2002) can perform better to the expectations of its crores of valued customers.”

                “Thanks a lot for giving us many valuable information” – Dr Dash and Professor Pattnaik replied – “We will certainly do something. Let’s hope for the best”. I continued my work with a quintessential dilemma within me – Will anybody listen ?