PPF is best, but try opening an a/c

A few years back I visited one of the nationalised banks to open a public provident fund (PPF) account for one of my cousins. And as you will see, I found more hurdles on my way than solutions.

First, we asked a senior gentleman at the branch about directions, only to be guided to another counter. We went counter-hopping for some time till we reached the right person.

This was almost like the scene from the movie Hera Pheri where Sunil Shetty (Shyam) goes to a bank to for a job and he gets passed on from one person to the next till he is grudgingly told that his job has been given to someone else.

Once I reached the destination, I asked the officer: "Can I get a PPF account opening form?" The reply was astounding. "We don't open PPF accounts here," he said.

PPF Calculator

I informed him that one of my associates had opened a PPF account in the same branch some time back and inquired if the rules had changed. Pat came the reply, "Forms are over so we have stopped taking new applications."

It was promptly followed by, "You need to have an account here for opening a PPF account." The whole haggling process went on for 30 minutes. Then I decided to approach the branch manager to solve the issue.

So I asked around and found that there were others as well, who had similar experiences with their respective banks. The answer, I realised soon, lay in the fact that unlike the other forms of deposits that banks solicit most of the times, PPF deposits do not go in the bank's coffers.

The money goes to the government and the bank does not get to even lend or use this money productively. The bank's role is merely that of an agent in such transactions. Of course, there is an element of commission for passing on the funds.

But obviously, that may not be lucrative enough for banks to encourage investment in PPF. That does not mean that the bank should come up with vague reasons and drive away investors!

Some of the common reasons given are:
We have stopped opening PPF accounts.
We do not have forms or challans in stock.
You need to have an account with us.
You should be a local resident.
"Why do you want to open a PPF account . We offer much higher interest rates than this for three year deposits."

Of course, the fifth reason is the best one. Never mind the lower post-tax returns of fixed deposits. Sigh!

So what can you do in case a bank refuses or delays opening a PPF account or gives some other reason?

The Reserve Bank of India in one of its circulars says, that it will monitor the quality of service rendered by banks. It also has some important points to make directly. Here are a few:

The branch should not direct investors to any other bank or branch for any reason.
Designated branches are not to refuse any member of public to open 'New PPF accounts'. (This, in effect, means that responses such as "We have stopped opening PPF accounts" have no relevance and should not be entertained by you.)
Bank branches should have sufficient forms or documentation for the public to open new PPF accounts.
Investors need not be residents in the vicinity of the branch and also need not have fixed deposits with the bank branch to open a PPF account.
In case the bank manager still says or believes that you cannot open a PPF account then you can approach the Banking Ombudsman.

Luckily for me, the bank manager obliged when I brought these circulars to his attention. Like other PPF investors, my cousin now has received compounded returns of 8 per cent in the last couple of years along with the additional tax deductions that come as a kicker.

PPF, as an instrument, is one of the best investments in the debt space, especially for people in the higher tax brackets. If you have not opened an account so far, do so by all means if you like to add debt to your portfolio.

However, don't let the bank or branch be a roadblock in your endeavour of opening the account.