Interest rates on small savings schemes, except the ones for the girl child and senior citizens, could be reduced by 25 to 50 basis points (bps) with effect from April 1. Henceforth, the interest rate would also be reset on a quarterly basis instead of annual basis. An official announcement in this regard is expected in a day or two.
Without
mentioning how much the reduction would be in the interest rates, economic
affairs secretary Shaktikanta Das on Thursday said the spread of 25 bps (above
the average yield from government securities with similar maturity) available
now for the small saving schemes below five years, would be reduced. “But
for long term saving schemes of above five years, the spread will be protected
because the government has taken into consideration the interest of the small
savers and the need to encourage long term savings,” Das said. Even if the
spread is maintained for long-term savings, the actual interest rate on these
could come down a bit as yields on government securities have declined over the
past year, analysts say.
Though
small savings rate are usually determined to be 25 basis points above the
average yield from government securities with similar maturity in the previous
year, there have been three instruments that carry even higher rates: Sukanya
Samriddhi Account, the Senior Citizens Savings Scheme and the National
Small Saving Certificates (NSC). While the proposed changes won’t impact the
high interest bearing schemes for the girl child and senior citizens, there
could be some reduction in the NSC rates also.
Once
these rates are announced, it is expected that bank deposit and lending rates
to also fall. While the Reserve Bank of India has been cutting rates, banks
have passed on less than half of the cuts on account of high rates on small
savings schemes. Bankers say if they cut rates, much of their deposits would
flow into small savings schemes.
For
example, one-year postal deposit offers 8.4% where as State Bank of India
offers 7.25% for deposits of the same tenure (7.5% for senior
citizens). For the girl child’s welfare, the Sukanya Samriddhi Account
Scheme offers 9.2% interest for a period up to 10 years while SBI offers only
7% on term deposits of 5-10 years (7.25% for senior citizens).
The
cumulative corpus of National Small Savings Fund is projected to rise to Rs
9.59 lakh cr after accretion of Rs 52,000 cr in 2015-16.
Present rates are as under :
