NEW DELHI: Interest rates on popular small savings such as Kisan Vikas
Patra, National Savings Certificate and post office recurring deposit
schemes are set to come down from April 1 as the government rejigs the
interest rate framework for these schemes to align it with market rates.
Interest rates of these schemes will now be reset every quarter as part of this rejig, a
finance ministry
statement said on Tuesday.
"This is expected to help the economy move to a lower overall interest
rate regime eventually and thereby help all, particularly low-income and
salaried classes," it said, explaining the rationale behind this move.
Sukanya Samriddhi Yojana, senior citizen savings scheme and the monthly
income scheme that enjoy interest rate and spread over the G-sec rate
of comparable maturity that is of 75 basis points, 100 bps and 25 bps
respectively have been left untouched by the government.
Spread
of 25 bps that long term instruments, such as the five-year term
deposit, five-year National Saving Certificates and Public Provident
Fund (PPF) currently enjoy over G-Secs of comparable maturity have also
been left untouched as these schemes are particularly relevant to the
self-employed professional and salaried classes, it added.
The
five-year recurring deposits, and one-year, two-year and three-year term
deposits, however, will stand to lose their interest rate advantage
with the government removing the 25 bps spread over G-sec of similar
maturity from April 1, 2016.
"The interest rates of all
small saving schemes
would be recalibrated w.e.f. 1.4.2016 on a quarterly basis as given
under, to align the small saving interest rates with the market rates of
the relevant government securities," the statement said, adding that
small savings interest rates are perceived to limit the banking sector's
ability to lower deposit rates in response to the monetary policy of
the Reserve Bank of India.
The government has decided to allow
for premature closure of PPF accounts in cases such as that of of
serious ailment, higher education of children, This shall be permitted
with a penalty of 1% reduction in interest payable on the whole deposit
and only for the accounts having completed five years from the date of
opening, it said.
The weighted average yield of dated G-secs
was 7.94% in April-September 2015 compared with 8.81% in the first half
of the preceding year, potentially opening up the possibility of an up
to 0ne percentage point reduction in the small savings rate.
Issue of higher interest rates on small savings schemes impacting
monetary transmission had been flagged by the RBI to the government.
Banks had also raised the issue at the pre-budget consultations held
with finance minister Arun Jaitley.