Interest on PPF, other small savings schemes may come down

New Delhi: A top government official has hinted that there could be some moderation in small savings rates going forward in line with market rate. For this quarter, January to March, the government had kept interest rates steady on small savings schemes, including PPF, despite moderating bank deposit rates. Some bankers have been complaining that high small savings rates prohibits them to cut their deposit rates immediately to check flight of savings.

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“In India, right now we have about ₹12 lakh crore in small savings schemes and roughly ₹114 lakh crore in bank deposits. So the liability side of banks is getting affected by ₹12 lakh crore. When banks say this, it seems a bit of a tail wagging the dog situation,” Department of Economic Affairs Secretary Atanu Chakraborty told news agency Press Trust of India.

Currently, PPF and National Savings Certificates or NSC fetch 7.9% interest rate annually as compared to 5-year SBI fixed deposit fetching just 6.1%. Sukanya Samriddhi Account and Senior Citizen Savings Scheme offer higher rates than other small savings schemes. The girl child savings scheme Sukanya Samriddhi Account fetches 8.4% (compounded annually. The five-year Senior Citizens Savings Scheme offers an interest rate of 8.6%.

Still, the rate of small savings should have some linkages to market rate, which is largely determined by the rates on government securities, the finance ministry official told PTI.

Stating that the Shyamala Gopinath Committee report has been accepted, but operation of the linkage was still in works, he said “wait for this quarter interest rates. That will give you a fairly good indication. “There has been some signalling issue, which is being looked at”, he said.

Since April 2016, interest rates on small saving schemes are being revised on a quarterly basis. However, this formula for fixing small savings rates based on comparable yields on government securities, as recommended by Shyamala Gopinath committee, has however not been strictly followed in some quarters.

The government has raised fiscal deficit target in the Union Budget to 3.8% of the GDP from 3.3% pegged earlier for 2019-20 due to revenue shortage.

 

Source:- livemint

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