(All characters and conversations below are purely imaginary and may or may not reflect reality. The intention is not to hurt anyone, but to spark thoughtful debate. If it unintentionally hurts anyone, my sincere apologies.)
After our imaginary conversation on RBI policy in April 2025, the late Mr. Art Buchwald (AB) found himself restless in heaven. He called me—over the phone, in my dream, of course—yesterday.
“Everyone’s painting a rosy picture of the Indian economy—governments, RBI, economists,” he said. “I want to talk to a real Indian consumer. Just to check.”
I agreed.
Unfortunately—or fortunately—he stumbled upon an Indian Urban Senior Citizen (USC), known in his circle for offering armchair expert opinions on the stock market, mutual funds, and economic policy. Ironically, though, he had invested all his money only in scheduled commercial banks (SCBs) and post office savings schemes.
Here are the excerpts from their (very imaginary) interview:
AB: You must be pleased. CPI inflation is down to 2.82% in May 2025, and food inflation has dipped below 1% (0.99%)
USC: I have two daughters. And gold, which they’ll need, has shot up exponentially—nearing ₹10,000 per gram (₹9,895 on 26.06.25).
I own a two-wheeler—for errands and taking my wife out. The petrol price, which crossed Rs. 100 per litre two years ago, was not reduced when crude oil prices fell (from the high of USD 100 per barrel) to USD 80 levels. I was hoping the major oil companies would reduce petrol prices when crude touched USD 65 levels recently.
I had hoped oil companies might finally ease prices. But then came the war in the Middle East between Israel and Iran. That crushed my hopes. Thankfully, U.S. President Trump’s new-age ‘intervention theory’ has paused the conflict for now. I sincerely hope the major oil companies don’t get another chance to hike oil prices.
In this regard, though the year-on-year inflation rate has come down for the last three months, the CPI Index at 195.4 in December 2024—compared to the base year (2012) CPI Index of 100—indicates an average annual inflation rate of 7.95% (95.4/12) over the last 12 years. No bank has offered this rate for deposits during that period.
AB (Surprised): Oh! That’s a good analysis. Based on the decline in CPI inflation, RBI reduced the repo rate by 100 bps since Feb ’25. Everyone is upbeat about growth—consumers may take new loans, use the savings from reduced EMIs to spend more, and companies may report better cash flows, etc. Do you agree?
USC: The RBI MPC reduced the repo rate by 100 bps to pass on the benefit to borrowers. But banks seem to think that the cost of funds should be reduced first. That’s why, if you notice, the transmission of interest rates in bank deposits is higher (27 bps) than in lending rates (17 bps), as per the RBI report. In reality, the reduction in deposit rates is more than 100 bps when I renew my deposits.
A friend at the bank told me that 80% of the savings account balance is treated as a time deposit for a bank’s ALM calculations. That’s probably why the interest on my savings account has also been reduced to 2.5% from 3% earlier.
AB: Interest from deposits is only a supplement to regular income earned otherwise. Why do you crib so much about the small decline in bank deposit rates?
USC: I’m worried because some of my investments under the Senior Citizen Savings Scheme (SCSS) and bank deposits are maturing in July/August. There are rumours that the central government, taking a cue from the repo rate cut (and the resulting reduced G-sec borrowing costs), may reduce the interest rate on small savings schemes as well, including SCSS.
Incidentally, I’m not privileged to be among the less than 1% of the Indian population that enjoys a regular monthly pension after retirement. I’m also ineligible for the 100 days’ work under NREGA, since I’m categorized as an urban citizen. So, I currently live solely on interest from bank deposits and SCSS.
AB: You could invest in equities or mutual funds to make up for the loss of interest income.
USC: I never invested in stocks until after retirement. While trying to understand the stock market—what Sensex, NIFTY, etc., mean—I noticed that a regulatory shutdown of a bank’s arm results in the share price of the parent company going up. And when frauds or financial irregularities are reported in private banks, their share prices also go up! Whether that’s because of the regulator’s assurances or something else, I do not know. So I’m scared to invest in equities now.
Every day, I see “MF Sahi Hai” ads on all leading TV channels. So, I approached the bancassurance reps at my bank. They recommended some schemes (concepts like balanced, midcap, small-cap, etc., are Greek to me), and on the top of the form, the risk graph arrow points to high/very high. I’m confused. So, I continue to keep my retired savings in bank FDs and post office savings schemes.
AB: Just out of curiosity, you should benefit from the Finance Minister’s Union Budget for FY2025-26. No one needs to pay tax if their total annual income doesn’t exceed Rs. 12.75 lakhs.
USC: Since interest on bank deposits has already fallen by more than 100 bps, and income from SCSS is also likely to reduce, my annual income may not even cross the previous nil-tax ceiling.
AB: (controlling the tears in his eyes): Normally, my readers laugh heartily after reading my articles. I’m afraid this interview might make not just my readers, but even me, a little depressed. Is there no benefit at all for consumers from the 100 bps repo rate cut this year?
USC: Since unsecured personal loans offer the best returns to banks (due to higher interest rates), I heard that banks, which now extend personal loans to senior citizens against their monthly pensions, might introduce a new product for senior citizens like me, who survive on interest income from their investments. I hope to get a bank loan to cover my income deficit in the near future.
AB smiles, shakes hands, and leaves. My dream ended as I woke up. The next day, AB confided in me (in my dream, of course) that he had met his match in the Indian urban senior citizen.
Please wait for AB’s next interview.
