Anger and frustration over 15% interest rate
View(s):Scene at a local bank in Colombo: An officer desperately tries to calm an elderly man who vents his frustration over the controversial 15 per cent scheme, shouting, ’I have been cheated. I won’t vote for this Government again’.
Outside the city, a 70-year old woman with a Rs. 400,000 fixed deposit and withinthe prescribed limits of the Rs. 1 million aggregate in all banks, is told by a bank clerk that the new interest rate applies only to older loans! Later it was revealed that the customer was given the wrong advice.
This week the interpretation and enforcement by commercial banks of the much-awaited 15 per cent interest rate for senior citizens was greeted with disbelief, frustration and resignation.
Chaos and confusion reigned across commercial banks as many elderly citizens walked in this week to apply for the new interest rate only to be told that they are not entitled to the facility.
After a 3-week delay, operating instructions were sent by the Central Bank (CB) to commercial banks on the new rate. The eligibility and criteria as listed in the circular stumped, angered and annoyed many elder citizens in a scheme which is appearing to be a political stunt by the Government after all the niceties stated by Finance Minister Ravi Karunanayake in the interim budget and earlier by former President/Finance Minister Mahinda Rajapaksa in the 2015 budget presented last October. In both cases, the two spoke of helping the elderly but eventually badly let them down in what most people say is downright discrimination and cheating the people.
The new scheme offers 15 per cent interest to those over 60 years who have an aggregate (total) amounting to Rs. 1 million in fixed deposits which can be transferred to the new rate policy, But this is applicable to only those who had accounts up to January 31, 2015 shutting out any newcomers who reach 60 years a few months later and open accounts with their only savings – EPF or ETF. Thousands of senior citizens, struggling to make ends meet, on a fixed deposit of less or slightly over Rs. 1 million have been shut out.
The budget speeches of both Rajapaksa and Karunanayake gave a totally different perspective and in effect misled people that all elderly persons would be entitled to this new rate.
In his October 24 budget speech, Rajapaksa said: “I propose to offer a 12 per cent annual interest rate for deposits of pensioners and elders, who maintain their deposits in state banks”. (Note: There is no reference as to how much an individual has in all banks to qualify for this payment. Later at the request of commercial banks the concession was extended to private banks).
On January 29, Karunanayake said: “There are a significant number of senior citizens who sustain themselves with the monthly interest income that they receive on their deposits. I am happy to announce that the senior citizens will be receiving a higher interest rate of 15 per cent per annum for their savings up to a maximum level of Rs. 1 million for funds deposited in commercial banks”. (Note: Again no reference to how much an individual must have in all banks to qualify).
The scheme went through various stages with the first proposal of 12 per cent for a maximum deposit of Rs 2.5 million being reduced to 12 per cent on a Rs. 1 million deposit and finally to 15 per cent for a Rs. 1 million deposit.
Restrictions on the eligibility criteria raises fundamental rights issues since the intention of the Government, as per budget speech, was to offer this high interest rate to all senior citizens without discrimination.
The aim of the Government to increase interest rates for this category of persons was, according to the Finance Minister, because there are “a significant number of senior citizens who sustain themselves with the monthly interest income that they receive on their deposits”.
If the Government wanted to help all senior citizens as clearly and precisely stated in the budget, why should it then limit this to (a) only those having a total of Rs. 1 million in FDs (b) having accounts before January 31, and (c) shutting out those who reach 60 years later and then open an account with their EPF/EFT refunds?
For probably a week or so, some elderly persons were able to open accounts at 15 per cent interest on a Rs. 2.5 million deposit before it was suspended when the new proposal was announced. If these deposits are allowed to remain at 12 per cent, then others too should also be allowed to open accounts at 12 per cent for Rs. 2.5 million, which is their right.
Simple accounting puts the issue in some perspective and proves why the proposal appears to be populist stunt. The current interest rate for FDs is 7-8 per cent per annum and a depositor who has an FD of for example Rs. 1.1 million (ineligible under the new scheme) will get an annual interest income of Rs. 88,000 or Rs.7,333 monthly. Does the government believe a depositor can live on such meagre earnings?
Over the past year, senior citizens have been clamouring for a decent rate of return on their savings and with commercial bank rates low, were forced to channel funds to finance companies. Earlier the collapse of sections of this sector with the advent of the Golden Key crisis saw a shift to commercial banks while many continued to rely on finance companies, forced by circumstances to get a better return on their funds to pay rising medical and food bills.
When Rajapaksa announced an increase in interest rates to senior citizens, there were cheers all around until they were told of the restrictions, and the realization that they were cheated.
Then came Karunanayake who proclaimed in the budget that Sri Lankans are smiling again. “The smiles portray freedom, liberty and courage. It is refreshing, the release from a bonding of family rule and crony nepotism,” he exhorted and extended a hand of support to the elders through the 15 per cent interest rate scheme.
That too turned out to be a huge disappointment to a sizable segment of the population whose retirement income comes only from EPF and ETF money invested in fixed deposits.
It is imperative that the Government seriously reconsiders the eligibility criteria and extends the facility to those whose income is based on deposits made from pension funds and not ill-gotten gains. The Government should be going after the crooks, not elderly citizens who have contributed immensely to the development of the nation and pay all their tax dues!