Small savings schemes like National Savings Certificate (NSC) and Public Provident Fund (PPF) are likely to fetch lower returns, disappointing millions of people.
Interest rates on these popular schemes are likely to fall because the government will revise rates on a quarterly basis starting April 1.
According to the current norms, interest rates of small saving schemes are linked to the yield of government bonds (with a small mark-up) and are revised once a year. The move will make small savings rate more closely aligned to the market rate, said Economic Affairs Secretary Shaktikanta Das.
This means, when interest rates are falling, the rates on small savings schemes will be revised lower quickly as compared to the current norms. According to estimates, the lower revision in small savings rate could save the government an estimated $700 million (Rs 4,760 crore) a year.
Nearly $137 billion or over Rs 9 lakh crore are currently tied up in small savings schemes.
The government has been under pressure to bring down the small savings rate. Bankers say higher small savings rates prevent them from lowering fixed deposit rates, thus impeding their ability to transmit rate cuts.
The economic affairs secretary said some social sector schemes for girl child and senior citizens schemes will have higher interest rate as compared to similar small savings schemes. However, interest rate on the girl child and senior citizen schemes will be revised quarterly, he said.
"The rates under the girl child and senior citizen schemes will have quarterly adjustment but whatever spread (mark-up) they have they have over government bond yield will not be altered," the secretary said.
The details about the new framework for small savings rates will be released soon, Mr Das said. (With Reuters inputs)
Interest rates on these popular schemes are likely to fall because the government will revise rates on a quarterly basis starting April 1.
According to the current norms, interest rates of small saving schemes are linked to the yield of government bonds (with a small mark-up) and are revised once a year. The move will make small savings rate more closely aligned to the market rate, said Economic Affairs Secretary Shaktikanta Das.
This means, when interest rates are falling, the rates on small savings schemes will be revised lower quickly as compared to the current norms. According to estimates, the lower revision in small savings rate could save the government an estimated $700 million (Rs 4,760 crore) a year.
Nearly $137 billion or over Rs 9 lakh crore are currently tied up in small savings schemes.
The government has been under pressure to bring down the small savings rate. Bankers say higher small savings rates prevent them from lowering fixed deposit rates, thus impeding their ability to transmit rate cuts.
The economic affairs secretary said some social sector schemes for girl child and senior citizens schemes will have higher interest rate as compared to similar small savings schemes. However, interest rate on the girl child and senior citizen schemes will be revised quarterly, he said.
"The rates under the girl child and senior citizen schemes will have quarterly adjustment but whatever spread (mark-up) they have they have over government bond yield will not be altered," the secretary said.
The details about the new framework for small savings rates will be released soon, Mr Das said. (With Reuters inputs)
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