Small savings committee proposes to restructure agent commission

The report by finance ministry’s committee on small savings recommends either reducing or completely abolishing the commission paid to agents on various small savings schemes

The finance ministry’s committee on small savings chaired by Shyamala Gopinath, deputy governor, RBI, has recommended either reducing or completely abolishing the commission paid in the Standardised Agency System (SAS), Mahila Pradhan Kshetria Bachat Yojana (MPKBY) and Public Provident Fund Agents (PPFA). These recommendations were made in the report “The Committee on Comprehensive Review of National Small Savings Fund (NSSF)”.

The committee recommends that under PPF, the commission should be abolished, as 90% of the transactions are happening through banks and for banks commission is not payable for any other scheme. They feel that 4% commission under MPKBY is very high and is affecting the viability of NSSF.

The committee recognizes that the recurring deposit (RD) scheme requires considerable effort on part of agents in mobilizing monthly deposits. But calling the 4% commission distortionary and expensive, the committee recommends bringing down the commission to 1% in a phased manner in a period of three years with a 1% reduction every year.

In addition, under SAS, the committee recommends that commission of 0.5% should be abolished on Senior Citizen Saving Scheme whereas on other schemes, it should be brought down to 0.5% from 1%.

According to the report the 13th Finance Commission (FC) noted that, “Incentives such as cash awards to officials and other similar measures to promote subscription to small savings instruments either add to the cost of administration or affect normal market linked subscription. Hence, such incentives should be proactively withdrawn by the state government.”

Agreeing with 13th FC, the committee noted that agency charges distorts the investment pattern and increases the effective cost of borrowings for NSSF. Thus, in order to ensure that the state governments do not give any extra incentive to the agents, the committee has recommended that the incentive paid to the state government may be reduced from the incentive payable by the central government to the agents.