Monday, 30 March 2015

Procedure to take loan against Public Provident Fund (PPF) account

It is possible to take loan against the PPF account subject to certain rules and certain limitation on the amount of loan.

Rules for taking loan against PPF account

A subscriber can avail a loan on his / her PPF deposit any time after the completion of one year from the end of the financial year in which initial subscription was made but before the expiry of five years from the end of the financial year in which the initial subscription was made.

For example -

A subscriber has opened an account in January 2010 that means PPF account is opened in the financial year 2009-10. End of the financial year would be 31st March, 2010. Completion of one year from the end of the financial year means 31st March, 2011. So subscriber will be eligible to take loan from April 1, 2011.
Expiry of five years from the end of the financial year in which the initial subscription was made means five years from 31st March, 2010. That will come to 31st March, 2015. Which means subscriber will be eligible for a loan from April 1st, 2011 to 31st March, 2015.

Why this rule?

If some readers are wondering why till 5 years why not beyond that? Answer is, after five years subscriber is eligible for partial withdrawal so no need to take loan.

Read: What are the PPF partial withdrawal rules?

Loan Amount

There is a limit on the amount that can be taken as loan from the PPF account which is as;
The loan amount will be limited to 25% of the balance outstanding to the subscriber's credit at the end of the second year immediately preceding the financial year in which the loan is requested.

For example-

A subscriber requesting a loan in April 2011 will be eligible for 25% of the amount that stood to his credit as on March 31, 2010.

Interest rate charged on the loan

Rate charged on loan is 2% above the rate of return on PPF. Since the current rate of interest on PPF is 8.7% so the rate of interest charged on loan would be 10.7%.

Required document for loan

  • Form D.
  • Pass Book.

Condition for second loan

A subscriber shall not be entitled to get a fresh loan so long as earlier loan has not been repaid in full together with interest thereon. Duration for the second loan should also fall in the same duration -
After the completion of one financial year and before the expiry of five financial years.

Loan against Minor's PPF account

Loan can be taken from the Minor's account. In that case the following section in the loan form (Form D) has to be filled. "Certified that the amount sought to be withdrawn is required for the use of _____________________________________________ who is alive and is still a Minor"

Repayment of loan

The loan is repayable in 36 months. First the principal amount and then the interest in the following order.

  • The principal amount of the loan shall be repaid by the subscriber before the expiry of thirty six months from the first day of the month following the month in which the loan is sanctioned. The repayment may be made either in one lump sum or in two or more monthly installments within the prescribed period of thirty six months. The repayment will be credited to the subscriber’s account.
  • After the principal of the loan is fully repaid, the subscriber shall pay interest thereon in not more than two monthly installments. The interest will be charged for the period commencing from the first day of the month following the month in which the loan is drawn up to the last day of the month in which the last installment of the loan is repaid.
If the loan is not paid at all or is repaid only in part within the prescribed period of thirty six months, interest on the amount of loan outstanding shall be charged at six per cent per annum from the first day of the month following the month in which the loan was obtained to the last day of the month in which the loan is finally repaid. Total duration given for paying both principal and interest is thirty-six months.

Reference Download

SBI form D

Points to note -

  • Loan from PPF account is allowed after the completion of one financial year and before the expiry of five financial years.
  • Loan facility ceases to exist as soon as the PPF account is eligible for partial withdrawals.
  • Loan can be taken from minor's PPF account too.
  • Loan (principal + interest) has to be repaid with in 36 months.
  • Interest rate charged is 2% above the rate of return on PPF.

That's all for this topic Procedure to take loan against Public Provident Fund (PPF) account. If you have any doubt or any suggestions to make please drop a comment. Thanks!


Related Topics

  1. Duration and maturity options of PPF account
  2. PPF partial withdrawal rules
  3. Rate of interest on PPF
  4. EEE EET ETE explained

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