The Centre on Thursday kept interest rates on small savings schemes, including National Savings Certificate (NSC) and public provident fund (PPF) unchanged for the April-June quarter of FY23.
The interest rates on various small savings instruments range from 4 per cent to 7.6 per cent. While the government specifies the interest rates, they are linked to market yields on G-secs at a spread of 0-100 basis points over the yield of securities with comparable maturities.
Citing an elevated level of inflation, the Centre has now opted to keep interest rates unchanged for the ninth straight quarter. The interest rate has not been revised since the first quarter of 2020-21. Interest rates for small savings schemes are notified on a quarterly basis. With the latest decision, small savings schemes like NSC and PPF will continue to attract an annual rate of 7.1 per cent and 6.8 per cent, respectively.
“The rate of interest on various small savings schemes for the first quarter of the financial year 2022-23, starting from April 1, 2022, and ending on June 30, 2022, shall remain unchanged from the current rates applicable for the fourth quarter (January 1, 2022, to March 31, 2022) for FY 2021-22,” the finance ministry said in a notification.
The one-year term deposit scheme will continue to earn an interest rate of 5.5 per cent in Q1 of FY23. The girl child savings scheme Sukanya Samriddhi Yojana account will earn 7.6 per cent. The interest rate on the five-year senior citizens’ savings scheme, which is paid quarterly, will be retained at 7.4 percent. The interest rate on savings deposits will continue to be 4 per cent per annum.
Term deposits of one to five years will fetch an interest rate in the range of 5.5-6.7 per cent, to be paid quarterly, while the interest rate on five-year recurring deposits will earn a higher interest of 5.8 per cent.
“With the rise in G-sec yields over the last three months, as well as the inching up of deposit rates of banks, we had foreseen a small probability of the small savings rates being revised upwards for the coming quarter. We expect a shallow rate hike cycle to commence in mid 2022, with 50 bps of repo hikes over August-October 2022, which may subsequently be mirrored in small savings rates being hiked,” Aditi Nayar, Chief Economist, ICRA, said.
The Reserve Bank of India has been periodically urging the government to stick to a formula based approach to setting small savings interest rates. In October last year, the RBI had, in its monetary policy report, cautioned that the interest rate differential on small savings and bank deposits had resulted in growth in accretions to small savings consistently exceeding that of the bank deposits since 2018. This could have implications for monetary transmission, the RBI had noted.