With inflation eating into your disposable income and Equated Monthly Instalments (EMIs) on loans claiming a bigger share of your salary pie, 2011 would be a year best forgotten for most salary earners.

That said, things were not bad if you look at the other side of the coin. It has been a good year for the stock-market averse, with plenty of attractive opportunities opening up for debt investments.

Borrowers pay more

When the RBI raised policy rates by 25 basis points in January 2011 neither India Inc nor the common man felt the pinch immediately. Bank credit in the next few months still grew well over the projected 20 per cent for 2010-11.

All this changed dramatically during the course of the year. Persistently high inflation forced the RBI to keep tightening the screws on loan disbursements, pushing up the repo rate in stages from 6.5 per cent in January to 8.5 per cent in October. This forced banks to up their lending rates.

SBI's base rate during the year, for example, moved up by 200 basis points to 10 per cent.

Consequently, while high interest costs brought down profit margins of companies, retail borrowers had to shell more on EMIs. Had you been servicing a ten-year floating rate loan of Rs 30 lakh from HDFC, the interest rates have moved up from 9.5 per cent in the beginning of the year to 10.75 now, increasing your monthly outgo by about Rs 2,000.

Rising interest rates also had their effect on rate-sensitive sectors such as automobiles with car and commercial vehicles sales moderating.

Savers received more

Those who had cash to spare, however, would have reaped better rewards. The strengthening demand for credit, thanks to a bounce back in economic activity widened the gap between credit and deposit growth for banks.

An unsustainable gap of as much as 9 percentage points as on December 2010 forced banks to lure depositors with higher returns. By end-2011, interest rates on longer-tenor deposits (two to five years) touched the double-digit mark, with small private sector banks taking the lead.

With investors actively shifting money into bank deposits, post-office schemes saw diminished interest. Total receipts into all small savings schemes for January-September 2011 stood at Rs 1,47,608 crore, about 23 per cent lower than the collection in the first nine months of 2010.

Total receipts into 1-, 2-, 3- and 5-year post-office time deposits, which offered much lower returns than bank FDs, shrunk even more, by about 27 per cent. That said, the year also witnessed the deregulation of interest rates on these post-office schemes in a bid to make them more attractive.

Debenture, bond issues

Besides, to lure investors with interest rates higher than what banks offered several companies such as India Infoline Financial Services, Mannapuram Finance, Muthoot Finance, Shriram City Union and Shriram Transport Finance come out with non-convertible debenture issues offering high yields.

End 2011 also saw the next round of infrastructure bond offers from Power Finance Corp, IDBI, IFCI and L&T Infrastructure Finance. With the interest rates on these bonds linked to 10-year government bond yields and these peaking at almost 9 per cent in November 2011, these bonds opened up yet another window for those who swore by debt investments.

If borrowers faced the music and savers enjoyed high returns, the tables could well be turned next year. With the RBI pausing the rate hikes in its December 16 review and signalling a possible reversal, interest rates could begin their downward journey in 2012. Savers, grab the opportunities while they last.

> vardhini.c@thehindu.co.in

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