Govt to discontinue 7.75% saving bonds from May 28

Govt to discontinue 7.75% saving bonds from May 28

Representative image. (Credit: iStock)

The curtain will come down on the most attractive ‘RBI 7.75% Saving Bonds’ on Thursday, 17 years after they were launched in 2003 to encourage retail investors but became an instant hit with the middle class, especially retirees and senior citizens, whose day-to-day expenditures depended on regular interest incomes and fixed returns.

These bonds, as the name suggests, offered an interest rate of 7.75% and were issued by the Government of India. Therefore, they carried no credit risk.

The decision to close these saving bonds was announced late Wednesday evening by the Reserve Bank of India without giving reasons for its move. However, in an era of declining interest rates on all other saving instruments including fixed deposits, it was expected that sooner or later the government would wind up the scheme.

"The Government of India, hereby notifies that the 7.75 per cent Savings (Taxable) Bonds, 2018...shall cease for subscription with effect from the close of banking business on Thursday, the 28th of May, 2020," said a notification by RBI.

The government had slashed the interest rates on small savings by one percentage points or more last month. The lending rates are on the decline with the RBI cutting the key short-term lending (repo) rate to a two-decade low of 4%.

The Bonds were issued at par at Rs 100. The minimum subscription was fixed at Rs 1,000. They were repayable on the expiration of seven years from the date of issue. Interest on the Bonds was taxable. Barring non-resident Indians (NRIs), any individual or Hindu Undivided Family (HUF) was allowed to invest in these bonds.

When they were originally launched in 2003, they carries an interest rate of 8% and had a fixed tenure of 6 years. The first time, the interest rate was slashed on these bonds was in 2018. It was brought down by 25 basis points.

In 2018 too, the government had first discontinued these bonds but after the protest by the Opposition, it was restored but the interest rate was lowered to 7.75%.