Govt may prune interest on small savings schemes

Shishir Sinha New Delhi | Updated on September 24, 2019 Published on September 24, 2019

Interest rates on small savings schemes such as National Saving Certificates (NSCs) and Public Provident Fund (PPF) are likely to moderate by 10 to 20 basis points (100 basis points make 1 percentage point) in the October-December quarter.

However, considering the forthcoming elections in two States — Maharashtra and Haryana — the Centre may keep the rates unchanged for now, some observers opine.

Based on the recommendations of the Shyamala Gopinath panel, interest rates on 12 small savings schemes are reviewed before the end of every quarter, and new rates are announced for the next quarter.

In an effort to bring the rates in line with the market, these rates are aligned to the rates on government bonds of similar maturities with certain spread which will be maximum for the Senior Citizens Savings Scheme (SCSS).

The yield on government bonds (G-Sec in market parlance) is mostly on a declining trend. For instance , it was 7.27 per cent on a 10-year bond in the beginning of April and rose to 7.39 per cent in the beginning of May. But it came down to 6.98 per cent in June, to 6.88 per cent in July and to 6.42 per cent in August. Again, in the beginning of September, it increased to 6.52 per cent. Based on the movement, the government lowered the interest rate by 10 basis points for the July-September quarter. Now, the government is expected once again lower the rate.

Even after a 10-point reduction, the rates on small savings schemes will be attractive compared to bank fixed deposits.

Published on September 24, 2019
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