GoI announces the sale of two dated securities for a notified amount of ₹27,000 crore
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Mint
3 hours ago
- Mint
Can RBI's floating-rate bond improve your debt returns?
With fixed deposit (FD) rates softening after the Reserve Bank of India's (RBI) recent rate cuts, debt investors are left with few ways to optimise returns without compromising on safety. One instrument worth considering in this scenario is the RBI Floating Rate Savings Bond (FRSB), which currently offers 8.05% per annum and comes with the comfort of sovereign credit quality. How does it work? The FRSB is issued by the RBI on behalf of the government of India. You don't need a demat account to invest; you can buy it from a bank or the RBI's Retail Direct platform. Its interest rate is linked to the National Savings Certificate (NSC) rate, with an additional 0.35% spread. The NSC currently offers 7.7%, pegging the FRSB's interest rate at 8.05%. The rate is reset every six months, depending on changes in the NSC rate, though the 0.35% spread remains fixed. Historically, the NSC has not seen steep cuts, and the lowest FRSB coupon since launch has been 7.15%. As Vidya Bala, co-founder of said, 'Although it is a floating-rate instrument, the rates have largely remained reasonable, even in times when interest rates have fallen." Interest is paid semi-annually. For example, on a ₹10 lakh investment at current rates, you'd receive a half-yearly payout of ₹40,250, which would total about ₹5.63 lakh over the seven-year lock-in. The payouts are made on 1 January and 1 July every year. What about liquidity? FRSBs come with a seven-year lock-in, with no option to trade or pledge them as collateral to raise funds. This limits liquidity compared to bank fixed deposits, which can be withdrawn prematurely, albeit with a penalty. Ankit Gupta, co-founder of said as FSRBs are not a tradeable security like other bonds, investors cannot sell them on any exchange or exit during the lock-in period. The minimum investment is ₹1,000, with no upper limit. Senior citizens, however, get preferential treatment with shorter lock-in periods. Investors aged 60 to 70 years have a six-year lock-in, those between 70 and 80 have a five-year lock-in, and those above 80 are required to stay invested for only four years. Senior citizens can also exit prematurely by forfeiting half of the last interest payout. Remember, rates can change As it is a floating-rate instrument, FRSB's interest rate may change in the future. 'It is a floating-rate bond, which means the rate may be reduced if the NSC's rate is reduced. At some point, if the rate-cut cycle restarts, there could be an impact on small savings schemes such as NSC, too," Gupta said. 'Unlike bank FDs where you can lock in an interest rate for the long term, a floating-rate bond may be susceptible to interest-rate changes over its lock-in period," he added. But as mentioned earlier, the government has generally been conservative when cutting rates on small savings schemes like NSC. Since its launch five year ago the FRSB has only seen two rate changes – both increases, following NSC rate hikes. NSC rates haven't been cut recently, despite recent interest rate cuts by the RBI. And if interest rates are hiked and government decides to increase the NSC rate, FRSB will see higher rates, too. However, there is no cumulative option on the bond, meaning interest won't compound over the holding period. It is up to the investor to reinvest interest payouts in FRSB or other debt instruments to create a compounding effect. How is it taxed? Interest earned on the bond is fully taxable at the investor's income slab rate. If annual interest exceeds ₹10,000, it is subject to 10% tax deducted at source (TDS). This makes the instrument more beneficial for those in lower tax brackets. For instance, an investor in the 5% slab effectively earns a post-tax yield of 7.63%, while someone in the 30% slab ends up with 5.54%.The principal (original investment) is returned tax-free at the end of the seven-year lock-in period. Even then, the yield remains competitive when compared with those of bank deposits, where five-year tenures currently pay slightly over 6% pre-tax. State Bank of India offers 6.05% on fixed deposits of more than five years. Should you invest? The FRSB comes with the safety of sovereign backing and currently offers an attractive interest rate. It can be used to improve your portfolio's overall yield, but needs to be combined with other debt products to address the liquidity constraints. 'Investors who need liquidity should still consider products such as bank FDs, which can be withdrawn before maturity, although with a penalty. The floating-rate bond can be combined with more liquid investments to optimise the overall yield. On the other hand, investors who don't need immediate liquidity can consider making larger allocation to FRSB," said Joydeep Sen, corporate trainer and author. FRSBs can also work well for investors seeking a regular income through interest payouts. But remember, the payouts may vary if the NSC rate changes.
The Hindu
3 hours ago
- The Hindu
Tamil Nadu's microfinance gross loan portfolio declines 23.5% at the end of June
The Gross Loan Portfolio (GLP) of the microfinance industry in Tamil Nadu declined 23.5% to ₹43,700 crore at the end of the first quarter of 2025-2026, from ₹57,100 crore in the comparable period last year. Meanwhile, microfinance industry players said there has been no major impact from the State government's law enacted to prevent coercive recovery of micro-loans by money-lending entities. According to CRIF High Mark, a credit bureau, Tamil Nadu's gross loan portfolio declined 6.7% on a quarter-on-quarter basis from ₹46,800 crore as of March 30, 2025. The Tamil Nadu Money Lending Entities (Prevention of Coercive Actions) Act, 2025, was notified in June 2025. The provisions of the Act relating to coercive action against borrowers also apply to non-banking financial companies registered with the Reserve Bank of India and co-operative banks and societies. 'After minor initial hiccups due to the ordinance passed by Tamil Nadu, the situation is back to normal in Tamil Nadu. There was no impact on collections due to the ordinance, and Tamil Nadu continued to perform well. The implementation of stricter guardrails by self-regulatory organisations has impacted disbursements; at the same time, portfolio quality has improved. Things are looking better for the industry,' Sadaf Sayeed, CEO, Muthoot Microfin, said. His company has a ₹3,200 crore microloan portfolio in Tamil Nadu. Jiji Mammen, executive director and CEO of Sa-Dhan, a self-regulatory organisation for the microfinance industry, said there is no major impact on the ground due to the Act enacted by the State government. 'There were cases in a few pockets where some people trying to take advantage of the Act. But now the collections are near normal. Overall, things are looking better for the microfinance industry in the country and a more clearer picture would emerge by the end of second quarter,' he said. All states except West Bengal registered double-digit declines in gross loan portfolio in June 2025, with sharpest reductions observed in Odisha (-24.7%), followed by Tamil Nadu and Karnataka (-22.9%), CRIF said.
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Business Standard
4 hours ago
- Business Standard
8th pay commission payout may trigger rate hike cycle in FY27: Report
The 8th central pay commission (CPC) payouts are likely to tilt the growth-inflation balance somewhat unfavourably and trigger the Reserve Bank of India's (RBI's) rate hiking cycle in late FY27 or FY28, according to a report by private think tank QuantEco Research. The report noted that the 8th CPC is facing administrative delays, with final implementation expected at least a year later than initially anticipated. This implies that revised payouts will be disbursed with sizable arrears, impacting both growth and inflation. Payouts with arrears will weigh more heavily on core inflation as they fuel demand for goods and services over time and cause an immediate reset of housing rents. 'Payout with arrears, though offering some growth support via consumption, will also exert inflationary pressure — through a reset in the housing component and higher demand for other core components. This will tilt the growth-inflation balance unfavourably, prompting the RBI to embark on a rate hiking cycle in late FY27 or FY28,' the report said. Since February, the monetary policy committee (MPC) of the RBI has cut the repo rate by 100 basis points (bps). In its review meeting on August 6, it unanimously decided to keep the policy rate unchanged at 5.5 per cent, while maintaining a neutral stance and cutting the inflation outlook for the current financial year by 60 bps to 3.1 per cent. The report added that the delay in 8th CPC payouts will push the fiscal impetus to growth — earlier expected in FY26 — to FY27 and early FY28. 'Historically, lump-sum payouts with arrears propel urban discretionary consumption. This is a classic real-world application of Engel's law. Household spending tends to shift towards big-ticket goods such as cars, consumer electronics, and services such as air travel. At the same time, part of the rise in disposable incomes will also flow into savings — possibly bank deposits and equity investments,' the report said. The report further highlighted that the 8th CPC's fitment factor could be close to 2, compared with 2.57 under the 7th CPC. This would raise the minimum pay to Rs 35,000–37,000, from Rs 18,000 fixed under the 7th CPC. The overall cost to the exchequer for revising pay, allowances and pensions could range between Rs 2 trillion and Rs 2.5 trillion, more than double the 7th CPC's cost of Rs 1 trillion. 'Assuming a marginal propensity to consume (MPC) between 0.6 and 0.7, we estimate the impact of the 8th CPC to be 65–80 bps on annualised private final consumption expenditure (PFCE) growth and 40–50 bps on GDP growth. With CPC payouts adding at least 0.6 per cent to the fiscal deficit-to-GDP ratio, the government will have to create fiscal space for financing,' the report said. It added that financing these committed expenses under the 8th CPC presents a 'golden opportunity' to push through pending goods and services tax (GST) reforms, as the compensation cess is likely to be phased out by Q4 FY26.
