What changed
RBI issued a circular on December 2, 2004, highlighting that the Government of India observed non-adherence to PPF Scheme procedures by agency banks. Specifically, a branch allowed a 5-year extension on a PPF account opened in June 1989, even though the extension was only permissible after April 1, 2005. The circular reiterates the need for strict compliance with paragraphs 9(3), (3A), (3B), and related summary provisions.
What it means for you
Banks operating PPF accounts must ensure that maturity periods and extensions are calculated strictly as per the scheme rules. Any premature extension or incorrect reckoning of the 15-year lock-in period from the close of the financial year of initial subscription will be a violation. This circular serves as a warning to tighten internal controls and avoid regulatory action.
What you must do
- Re-issue the PPF Scheme instructions to all designated branches immediately, emphasizing correct maturity and extension calculation.
- Audit recent PPF account extensions to identify any premature approvals and rectify them.
- Train branch staff on the exact rules for PPF maturity (15 years from end of financial year of first deposit) and extension blocks.
- Ensure acknowledgment of this circular is sent to RBI as required.
Who it affects
State Bank of India and its associate banks, 14 nationalised banks, Corporation Bank
What is the correct rule for PPF account maturity and extension?
A PPF account matures 15 years from the end of the financial year in which the first subscription was made. Extension for a block period of 5 years can only be applied after this 15-year period ends.
What violation did the RBI circular highlight?
One branch allowed a 5-year extension on a PPF account opened in June 1989, before the 15-year lock-in ended (which would be after April 1, 2005). This was a direct violation of government instructions.
What action must banks take now?
Banks must immediately re-issue the PPF Scheme instructions to all designated branches, ensure strict compliance with maturity and extension rules, and send an acknowledgment to RBI.