In a move to make the small savings schemes market competitive, the Government is likely to bring the rates down soon, while the savings schemes for senior citizens and girl child will be kept unchanged. The final decision in this regard will be taken next week in a review meeting which will be headed by Union Finance Minister Arun Jaitley.
“The Centre will take a decision to cut small savings rate on December 9. The move has to align them with market rate to make it more competitive,” said a source in the Finance Ministry.
Small saving schemes include Post Office Monthly Income Scheme (MIS), Public Provident Fund (PPF), Post Office fixed Deposit Scheme, Senior Citizen’s Savings Scheme, Post Office Savings Account and Sukanya Samriddhi Accounts.
Even the Finance Minister on Friday hinted that the Government would cut interest rate on small savings cautiously so as to protect vulnerable sections like retired employees.
“As the Government wants to promote savings of the old and girl child, interest rates on Senior Citizens’ Savings Scheme and Sukanya Samriddhi Scheme are expected to be kept unchanged,” the sources said.
The Finance Ministry in September had announced its intention to review interest rates on small savings.
With small saving deposits commanding a rate up to 9.3 per cent, banks have been reluctant to transmit the entire policy rate reduction by the Reserve bank of India (RBI) to borrowers. The median base lending rates of banks have come down by about 60-70 bps despite extremely easy liquidity conditions, which is a fraction of the 125 basis points of the policy rate reduction since January.
Bankers also have passed on as little as 20 per cent of the biggest rate cut effected by the RBI since 2009 as they fear becoming uncompetitive to small savings like PPF and Post Office deposits. Most small saving instruments pay an interest rate of 8.75 per cent, compared to 7.5 per cent on deposits even at State bank of India (SBI).