In the absence of an authority to issue income certificates, students from several states are finding it difficult to get interest subsidy on education loans offered by the union government. This has also hampered banks from disbursing loans to needy students
Nearly a year after the central government finalised a scheme to provide interest subsidy on education loans for students from the economically weaker sections, many states and union territories have still not designated the income certificate issuing authority.
Canara Bank is the nodal bank for member banks of the Indian Banks' Association (IBA) to claim reimbursement of the interest amount. The scheme was planned and the details worked out by the Ministry of Human Resource Development over a year ago. But according to data on the Canara Bank website, as many as 28 states and union territories are yet to designate the income certificate issuing authority.
According to the ministry, under the scheme formulated by the IBA, full interest subsidy will be provided during the period of moratorium on education loan for students from families with an annual income of less than Rs4.5 lakh.
The ministry said recently, "Under the scheme, proof of income is required to be certified by authorities to be designated by the state governments. Accordingly, the ministry has written to all chief secretaries of states/union territories to intimate the designated authority/authorities (at the district/sub-district/block, etc levels) to the district level consultative committee (DLCC), so that banking authorities at the branch level where students apply for the loans, would be aware of the same. The eligible students may get the details of designated authorities from the concerned branch of the bank where they have availed of the loan."
Several banks have been trying to help students avail of the scheme, but their efforts have been hampered as students have not been able to find the authority that will issue an income certificate.
"We have already sent the claims to the nodal banks. But many of the states are yet to designate the income certificate issuing authority," said a senior official at a public sector bank that has its headquarters in Mumbai.
An Indian Bank official, who requested anonymity, told Moneylife that, "We have received and credited claims of more than 50,000 students. We forwarded these claims on the interest subsidy on education loans to Canara Bank for 2009-10. But a few states are yet to identify the authority to issue income certificate."
Students have complained they cannot identify the authority. One such complaint on the www.conumercourt.in reads: "I had taken education loan for my son studying in BITS Pilani, Hyderabad Campus. When the Central government decided to give interest subsidy for EWS, I applied for the same. However, the SBI authorities asked me to get an income certificate signed by MRO (tehsildar). On approaching my tehsildar, he said that there is no go which authorises me to sign income certificate. I had shown the memo issued by principal secretary to government to all collectors, but the MRO insists that he will not sign the income certificate and the SBI are not willing to accept my application. I am caught between the devil and deep sea (state and central governments)."
Meanwhile, the ministry has announced that 20 July 2011 is the last date to submit certificates to their respective branches, so that interest could be credited with interest due on the loans taken during the academic year 2009-10 onwards.
The current scheme on education loans also allows a deduction under section 80E of the Income-Tax Act for interest paid on the loan.
Committee, headed by RBI deputy governor, proposes reducing or abolishing agent’s commission on various schemes such as PPF, NSC
The finance ministry's committee on small savings has, in its recent report, recommended either reducing or completely abolishing the commission paid to agents on various schemes, saying that it adds to the overall cost of the schemes. This has aggrieved many agents who feel that the recommendations are 'unfair'.
The committee, chaired by Shyamala Gopinath, deputy governor of the Reserve Bank of India, has made its recommendations in the "Report of the Committee on Comprehensive Review of National Small Savings Fund" on the commission paid in the Standardised Agency System (SAS), Mahila Pradhan Kshetria Bachat Yojana (MPKBY) and Public Provident Fund Agents (PPFA). Agents are paid for these schemes from the National Small Savings Fund (NSSF) on the basis of gross small savings collections.
The committee says that under PPF, the commission should be abolished. Under PPF, 90% of the transactions are happening through banks, and for banks commission is not payable for any other scheme of theirs. The committee feels that 4% commission under MPKBY is very high and is affecting the viability of NSSF.
"The committee recognises that the RD (recurring deposits) scheme requires considerable effort on the part of agents in mobilising monthly deposits. However, 4% commission is distortionary and expensive. The committee recommends that this should be brought down to 1% in a phased manner in a period of three years, with a 1% reduction every year. Under SAS, while the commission for the senior citizen saving scheme is 0.5%, it is 1% on other schemes. The committee recommends that while commission should be abolished on the Senior Citizen Saving Scheme, on other schemes, it should be brought down to 0.5%."
According to the report, there are over five lakh small agents in the country. Over Rs2,000 crore is paid annually as commission to the agents of the small savings schemes. This, the report says, adds to the overall cost of the schemes and is "agent driven".
Industry experts have two views on this, even as the agents' are protesting. Experts feel that 4% is a high commission to be paid, but not paying anything is not the right approach.
It has recently been reported that UK Sinha, chief of the Securities and Exchange Board of India (SEBI), is planning to incentivise distributors in order to provide "organised and sustainable growth of the mutual fund industry". In August 2009, then SEBI chief, CB Bhave, had banned all entry loads on mutual fund schemes.
Mumbai-based PPF agent, Shrigopal Jhunjhunwala told Moneylife, "These recommendations are against the customers. They (government) think that the bank is providing PPF service, so agents are not required. This is a wrong perception. We make the customers understand about the scheme, new rules and regulations, take timely payments from them, deposit in banks, maintain their records. We earn just 1% anyways, which is for our service. Such recommendations will make agents give up their profession and eventually affect customers who are already confused about the schemes."
Mr Jhunjunwala says, "These recommendations will make PPF scheme the same as the New Pension Scheme, in which only a few people are investing."
Blog Galaxy of independent financial advisors says, "I feel that (there are) large number of fellows (who are) also engaged in distribution of small savings schemes (post office schemes - NSC, MIS, SCSS 2004, RD, etc.) The proposed changes will adversely affect the business models of all such fellows."
Snehal More, post office savings scheme agent from Mumbai, echoed the view. "This is unfair. People are themselves unaware of their investments. We get commission, but there is equal amount of hard work to earn this. We have to collect money on a monthly basis, track clients' maturity dates, and so on. Many people don't pay on time and at times we have to pay the defaults. Already, many agents are giving up because of such hassles. These recommendations will lead more agents to give up the work."
Currently, under SAS, there is a commission of 0.5% or 1% of the total collection on schemes like Kisan Vikas Patra, Post Office Monthly Income Scheme, Post Office Time Deposits, National Savings Certificates, National Savings Scheme and Senior Citizens Savings Scheme. In the case of PPF also the commission is 1%.
The report says that the revised estimate of such commissions paid out in 2010-11 was Rs2,400 crore. Mumbai-based agents have planned meetings to protest against the recommendations.
This open-ended fund of funds will invest in emerging market funds like Amundi, which has given good return over the past one year. But the long-term story is not encouraging
SBI Mutual Fund has filed an offer document with the Securities and Exchange Board of India (SEBI) to launch SBI Global Emerging Market Fund, an open-ended fund of funds. The primary investment objective of the scheme is to seek capital appreciation by investing predominantly in Emerging Market equity funds like Amundi Funds Emerging Internal Demand. The scheme may also invest a certain portion of its corpus in money market securities in India, in order to meet liquidity requirements from time to time. The new fund offer price is Rs10 per unit.
The scheme would invest 80% to 100% of assets in units/securities issued by overseas mutual funds investing in emerging market equity, with a medium- to high-risk profile. Up to 20% of assets will be invested in domestic debt and money market instruments with a low-risk profile, and up to 20% of assets in listed equity securities of emerging market countries with a medium- to high-risk profile.
Investors will have the choice of growth or dividend (payout) options.
The objective of Amundi Funds Emerging Internal Demand is to achieve long-term capital appreciation by investing at least two-thirds of the assets in equities and equity-linked instruments of companies in developing countries. Such investments can be made through P-Notes, in case of limited access to a stock market, or for the purpose of efficient portfolio management. The scheme performance will be benchmarked against the MSCI EM Index.
The one-year and three-year return of Amundi Funds Emerging Internal Demand is 19.90% and 3.14%, respectively. The return since inception is 0.80%. On the other hand, the one-year and three-year return of MSCI EM (emerging markets) is 21.44% and 3.02%, respectively, while its return since inception is 0.57%.
The entry load is nil, whereas a 1% exit load will be charged for exiting within a year from the date of allotment. The total recurring expense would be 2.5% per annum and the minimum application amount on the regular plan is Rs10,000 and in multiples of Rs1, thereafter.
The fund manager of the scheme is Anup Upadhyay, who has been with SBI Mutual Fund for the past four years. He has been an equity analyst in the technology, telecom and education sectors with SBI Mutual Fund since May 2007. He previously worked with Tata Consultancy Services for a year.