Interest Rate on Small Savings may Come Down Further – Shaktikanta Das

Interest Rate on Small Savings may Come Down Further – While the rates for the girl child and senior citizen schemes will also be adjusted every quarter, the spreads they have over the G-Sec rates will be left unaltered, Mr. Das said.

downloadInterest rates for small savings schemes, such as Post Office Savings Account, Public Provident Fund and Post office Fixed Deposit Scheme, may be reduced by the government to align them more closely with the market rates, Economic Affairs Secretary Shaktikanta Das said.

The new rates would be applicable from April 1, 2016, Mr. Das said, without elaborating on the quantum of the cut. The rates for the long-term schemes and those for the girl child and senior citizens will remain unaffected by the decision, “Whatever policy rates are being announced by the Reserve Bank, the small savings rate will also pass it on….the effort has been such that the reduction in rates is passed on and given effect to the system,” Mr. Das said.

The Reserve Bank, over the last one year, has reduced interest rates by over a percentage point. At present, the small savings rates are linked to government securities and are readjusted every year. The decision is to start adjusting the rates on quarterly basis, Mr. Das said. “The executive order and notification would be issued in a day or two… broadly the underlying philosophy of the planned changes is to align the small savings rates more frequently and more closely to the market-aligned.”

The smalls saving schemes include Post Office Monthly Income Scheme (MIS), PPF, Post Office Fixed Deposit Scheme, Senior Citizens Savings Scheme, Post Office Savings Account and Sukanya Samriddhi Accounts.

While the rates for the girl child and senior citizen schemes will also be adjusted every quarter, the spreads they have over the G-Sec rates will be left unaltered, Mr. Das said.

“Taking into consideration the interest of small savers and some important social sector measures of the government, the rates under the girl child scheme, the senior citizen scheme…they will continue as it is.” Savings of over a five-year duration will continue to have the spread. “Government has taken into consideration the interest of small savers and the need to also encourage long-term savers.”

Asked if the banks were likely to pass on the benefit of the rate cuts to borrowers, he said that banks have passed on only 70 basis points of the cuts adding up to more than 125 basis points the Reserve Bank has announced since January last year. “Banks are free …it is for banks to decide by what basis points they will cut interest.” The Economic Affairs Secretary also said that the decline in the stock market indices in India as well as in the exchange rate of the rupee is not as severe as in some other countries.

“Over the last few days the NSE and BSE have experienced a lot of volatility…uncertainty and volatility is the norm world over now…India is not an exception, but is better off than many other markets.”

Given the global weakness, the advance growth estimate for the current financial year of 7.6 per cent released earlier this week by the Central Statistics Office (CSO) was not bad although the agriculture sector would continue to remain a challenge.

Source: The Hindu

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