The bonds were available for seven years. Since these were not traded in the secondary market, redemption took place at maturity.
The government will no longer sell its savings bonds that provided returns at 7.75 per cent (on a taxable basis), it said in a notification on Wednesday.
This was a popular instrument among the retired, who used to invest in this instrument that came with a lock-in period of 4-6 years - depending on the age of the bondholder.
For others, there was no premature redemption.
“The Government of India … hereby announces that the 7.75 per cent Savings (Taxable) Bonds, 2018, shall cease for subscription with effect from the close of banking business on Thursday, May 28, 2020,” the Reserve Bank of India (RBI) said in a notification on its website.
The bonds were issued in January 2018 for residents and Hindu Undivided Family (or HUF) members, and became instantly popular.
They were not available for non-resident Indians.
The minimum value of investment was Rs 1,000, with no maximum limit.
The bonds were available for seven years. Since these were not traded in the secondary market, redemption took place at maturity.
Premature withdrawal was allowed only for senior citizens, though there was a lock-in period.
State Bank of India, nationalised banks, Axis Bank, ICICI Bank, HDFC Bank, and Stock Holding Corporation of India (SHCIL) were entities issuing these bonds.
Importantly, the government notified that it was only ceasing fresh issuance and not redeeming those already invested.
Experts supported the move, saying it made sense for the government not to pay such high interest when the 10-year bond had itself reduced to about 6 per cent.
Small savings rates have reduced to 7.1 per cent, while banks are offering just 6.75-7.00 per cent on deposits.
The entire interest rate structure is coming down, amid the slowdown.
The RBI is reducing the repo rate and banks are reducing deposit rates, while the post office small savings rates were also slashed from April 1, said Joydeep Sen, consultant at Philip Capital.
“The rate of 7.75 per cent on RBI savings bonds was an aberration on the higher side.
"When interest rates decline, senior citizens face difficulty. There are preferential rates for senior citizens in certain deposits,” said Sen, adding that the lower interest rate was something senior citizens would have to live with.
Photograph: Thomas White/Reuters
