How to get a credit facility from the Public Provident Fund

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Loan against PPF: How to benefit from a credit facility against the Public Provident Fund

The Public Provident Fund (PPF) scheme is a government-backed long-term investment plan. It is a retirement savings plan launched with the aim of offering everyone a secure post-retirement life. The minimum deposit that one can make in the account per exercise is Rs 500 and it can go up to Rs 1.5 lakh. In accordance with the rules of the PPF scheme, the maturity date of the account is 15 years from the end of the financial year in which the initial subscription was made. The 15-year term of the account can be extended by one or more five-year installments without incurring loss of interest.

PPF account holders can avail loan facility in case of cash shortage, if they meet the eligibility requirements.

Loan against PPF

A PPF account holder is eligible for a loan after the third year of subscription, although this option is only available until the end of the sixth financial year. However, one cannot avail a loan for the full amount. A maximum of 25% of the amount available at the end of the two years immediately preceding the year for which the loan is requested may be borrowed.

According to the India Post website, “The loan can be drawn up to 25% of the balance to its credit at the end of the second year immediately preceding the year in which the loan is applied. (i.e. if the loan was contracted in 2012-2013, 25% of the loan balance on 31.03.2011).”

According to the SBI FAQ, “Clients can avail the loan facility between the third fiscal year and the sixth fiscal year, i.e. from the third fiscal year until the end of the fifth fiscal year.”

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Interest rate on loan against PPF

The loan from the PPF account has an interest rate 1% above the current interest rate set by the government. If you go to your local PPF branch now to apply for a loan, the interest rate will be 8.1% (the PPF interest rate is 7.1%).

Loan repayment term

The principal of a loan must be repaid in full within 36 months of the month the loan is approved, beginning on the first day of the following month. The principal amount of a loan must be repaid before the end of thirty-six months from the first day of the month following the month in which the loan was sanctioned. Reimbursement can be made in one go or in two or more monthly installments over a period of thirty-six months.

According to the PNB website, “After full repayment of the principal of the loan, interest shall be repayable in not more than two monthly installments at the rate of one percent per annum of the principal for the period commencing on the first day of the month following the month during which the loan is contracted until the last day of the month during which the last installment of the loan is repaid.

In accordance with PPF rules, withdrawals and loans are mutually exclusive. Loans are only available to account holders between the third and sixth year of holding an active account, with partial withdrawals permitted from the seventh year. This implies that you cannot take out a loan after the seventh year and you cannot make withdrawals before the sixth year.

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