The Finance Ministry has cut interest rates on small savings schemes by 10 basis points for July-September quarter, according to a government notification.
Small saving schemes such as national saving certificate and public provident fund will now fetch an annual interest rate of 7.9 percent for the second quarter of financial year 2018-19.
Interest rates on deposits for one to three years have been lowered to 6.9 percent from 7 percent, whereas interest rate on five-year deposits has been brought down by 10 basis points to 7.7 percent.
The government had last increased interest rates on a few small savings schemes in the January-March period, after a 30-40 basis point hike announced in the quarter ended December 2018. Interest rates were left unchanged for the ongoing quarter.
The rate cut is in line with the softening of government bond yields, and a 75 basis point cut in interest rates by the Reserve Bank of India in the last six months. The benchmark 10-year bond yields have dropped 102 basis points in the last six months, and closed at 6.88 percent on Friday.
Devendra Pant, chief economist at India Ratings & Research, said the drop in bond yields has been higher than the cut in interest rates of small savings schemes. “Due to government-administered small savings rate, banks find it difficult to mobilise deposits, ” he said, adding that it also leads to slow transmission of policy rate to end customers.
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