The central government can cut interest rates on small savings schemes such as post office deposits, public provident fund (PPF), National Savings Certificate (NSC) and Senior Citizen Savings Scheme. For the first quarter (April to June) of the next financial year, the interest rate charged on the small savings scheme will be announced by the end of this month.
Bankers demand a cut in interest rates
Let us inform you that despite the change in almost all the interest rates of the financial system, the central government kept the interest rate stable on the small savings scheme for the January to March quarter. In fact, bankers have been complaining for a long time that banks are not able to cut the deposit rate due to the high interest rate applied to small savings scheme, while on the other hand State Bank of India, India’s largest bank, has aggressively cut rates of fixed deposits in the current quarter. For example, currently, SBI has kept the interest rate at 5.9 per cent on a five-year SBI fixed deposit. Let us inform that the interest rates on small savings scheme are determined quarterly.
The formula for setting interest rates is not followed properly
From April 2016, interest rates on small savings schemes are being revised on a quarterly basis. But there is a formula to fix small savings rates based on government security, which was suggested by Shyamala Gopinath Committee. But it is not followed properly while revising interest rates in some quarters. If Gopinath’s formulas were strictly followed by the government, the interest rates on the current small savings scheme would have been 80 to 160 bps lower. SBI Research said that if the government were to implement the formula correctly, the interest rate on PPF would be close to 7 per cent in this quarter, which is less than 7.9 per cent at present.
Interest rates on current scheme
Scheme interest rate
PPF, NSC Fetch 7.9 Percent
Senior Citizen Saving Scheme (for 5 years) 8.6%
Post office saving 4 percent
Retail deposit 3 percent
Sukanya Samriddhi Scheme 8.4 percent (compounded annually)