Committee, headed by RBI deputy governor, proposes reducing or abolishing agent’s commission on various schemes such as PPF, NSC

Moneylife Digital Team

The finance ministry's committee on small savings has, in its recent report, recommended either reducing or completely abolishing the commission paid to agents on various schemes, saying that it adds to the overall cost of the schemes. This has aggrieved many agents who feel that the recommendations are 'unfair'.

The committee, chaired by Shyamala Gopinath, deputy governor of the Reserve Bank of India, has made its recommendations in the "Report of the Committee on Comprehensive Review of National Small Savings Fund" on the commission paid in the Standardised Agency System (SAS), Mahila Pradhan Kshetria Bachat Yojana (MPKBY) and Public Provident Fund Agents (PPFA). Agents are paid for these schemes from the National Small Savings Fund (NSSF) on the basis of gross small savings collections.

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

"The committee recognises that the RD (recurring deposits) scheme requires considerable effort on the part of agents in mobilising monthly deposits. However, 4% commission is distortionary and expensive. The committee recommends that this should be brought down to 1% in a phased manner in a period of three years, with a 1% reduction every year. Under SAS, while the commission for the senior citizen saving scheme is 0.5%, it is 1% on other schemes. The committee recommends that while commission should be abolished on the Senior Citizen Saving Scheme, on other schemes, it should be brought down to 0.5%."

According to the report, there are over five lakh small agents in the country. Over Rs2,000 crore is paid annually as commission to the agents of the small savings schemes. This, the report says, adds to the overall cost of the schemes and is "agent driven".

Industry experts have two views on this, even as the agents' are protesting. Experts feel that 4% is a high commission to be paid, but not paying anything is not the right approach.

It has recently been reported that UK Sinha, chief of the Securities and Exchange Board of India (SEBI), is planning to incentivise distributors in order to provide "organised and sustainable growth of the mutual fund industry". In August 2009, then SEBI chief, CB Bhave, had banned all entry loads on mutual fund schemes.

Mumbai-based PPF agent, Shrigopal Jhunjhunwala told Moneylife, "These recommendations are against the customers. They (government) think that the bank is providing PPF service, so agents are not required. This is a wrong perception. We make the customers understand about the scheme, new rules and regulations, take timely payments from them, deposit in banks, maintain their records. We earn just 1% anyways, which is for our service. Such recommendations will make agents give up their profession and eventually affect customers who are already confused about the schemes."

Mr Jhunjunwala says, "These recommendations will make PPF scheme the same as the New Pension Scheme, in which only a few people are investing."
Blog Galaxy of independent financial advisors says, "I feel that (there are) large number of fellows (who are) also engaged in distribution of small savings schemes (post office schemes - NSC, MIS, SCSS 2004, RD, etc.) The proposed changes will adversely affect the business models of all such fellows."

Snehal More, post office savings scheme agent from Mumbai, echoed the view. "This is unfair. People are themselves unaware of their investments. We get commission, but there is equal amount of hard work to earn this. We have to collect money on a monthly basis, track clients' maturity dates, and so on. Many people don't pay on time and at times we have to pay the defaults. Already, many agents are giving up because of such hassles. These recommendations will lead more agents to give up the work."

Currently, under SAS, there is a commission of 0.5% or 1% of the total collection on schemes like Kisan Vikas Patra, Post Office Monthly Income Scheme, Post Office Time Deposits, National Savings Certificates, National Savings Scheme and Senior Citizens Savings Scheme. In the case of PPF also the commission is 1%.

The report says that the revised estimate of such commissions paid out in 2010-11 was Rs2,400 crore.

Mumbai-based agents have planned meetings to protest against the recommendations.