RBI Seeks Feedback From Banks On Higher Interest Savings Plan For Children's Education

The Reserve Bank of India (RBI) has asked for banks' expertise on introducing a dedicated savings instrument with a higher interest rate, to help families build a corpus for their children's school education and related expenses. Banks are expected to discuss the proposal across the industry before submitting their recommendations to the regulator, according to a report by The Economic Times.

Banks Reviewing Proposal

The RBI has shared the proposal with banks and asked them to examine its feasibility, stated the news report by ET. Discussions are underway among both public and private sector lenders before the banking industry submits its feedback to the central bank.

The proposal is currently at the consultation stage, with banks expected to submit their recommendations after completing industry-wide discussions.

Product May Need New Regulatory Framework

The proposed savings product is expected to require a separate regulatory framework if it offers a preferential interest rate linked to a specific purpose, such as education.

At present, banks do not offer savings products with higher interest rates tied to a particular end use. New regulations would therefore be needed before such a product can be introduced.

The closest existing example is the Sukanya Samriddhi Yojana (SSY), although it is a government-backed savings scheme rather than a bank deposit product.

Education Costs Continue To Rise

The proposal comes as education expenses continue to increase. Industry estimates suggest education costs in India are rising by around 10 to 12 per cent every year, outpacing the growth in household incomes. This has made long-term financial planning for children's education equally important for many families.

Under SSY, the government currently offers an interest rate of 8.2 per cent a year. Deposits are capped at Rs 1.5 lakh annually, and contributions can be made for up to 15 years from the date the account is opened. The scheme, launched in 2015, aims to encourage families to save for the education and future needs of girl children.

A recent Crisil Ratings report projected that educational institutions will record an 11 to 13 per cent increase in total income during the current and next financial years, supported by higher enrolments and regular fee revisions. It also said the K-12 segment is expected to grow by 9 to 10 per cent, driven by urbanisation, improving affordability and annual fee increases.