1. Why reduction in PPF, NSC and KVP rates is bad for common man but good for economy; explained here

Why reduction in PPF, NSC and KVP rates is bad for common man but good for economy; explained here

As per the notification, PPF will fetch a lower annual rate of 7.8% while KVP will yield 7.5%.

By: | Updated: July 1, 2017 3:54 PM
 ppf, nsc, Public Provident Fund, Kisan Vikas Patra, KVP, Sukanya Samriddhi Yojana, interest rates, ppf rate, nsc rate, Public Provident Fund rate, The rates will be valid for the July- September quarter.

The Union government on Friday slashed interest rates on small saving schemes, including, NSCs, Public Provident Fund (PPF) and Kisan Vikas Patra by 10 basis points. The revised PPF and NSCs are set at 7.8%, while KVPs will earn only 7.5%. The new rates for Senior Citizen’s Savings Scheme (SCSS) and Sukanya Samriddhi Yojana have been revised to 8.3%. Now, we all know that it’s not good for end user or customer but financial experts are of the belief that the reduction is good for the industry. The reason they cite is – It will help banks bring down the lending rates. Hence, it is a sort of government’s resolve to keep lowering cost of capital in the country’s economy.

The rates will be valid for the July- September quarter. For readers information – A basis point is one-hundredth of a percentage point.

As per the notification, PPF will fetch a lower annual rate of 7.8% while KVP will yield 7.5% and mature in 115 months. The girl child savings scheme Sukanya Samriddhi Account will offer 8.3% annually. Investments in the five-year Senior Citizens Savings Scheme will yield 8.3%. The interest rate on the senior citizens’ scheme is paid quarterly.

Prior to the revision, PPF rates were set at 7.9 per cent, Kisan Vikas Patra (KVP) investments at 7.6 per cent, and the Sukanya Samriddhi Account Scheme at 8.4 per cent. Last time, the first rate cut had come in the month of March.

Noteworthy, interest rates on small savings are linked to the benchmark 10-year government bond yields. And, interest rates are revised in every three months time period. In the last revision, the rates for all schemes were reduced by 10 basis points. For April-June, rates were lowered by 0.1 per cent across the board compared to January-March. However, interest on savings deposits has been retained at 4 per cent annually.

Since April last year, interest rates of all small saving schemes have been recalibrated on a quarterly basis.

  1. A
    A Sen
    Jul 1, 2017 at 5:49 pm
    The very notion that 'the investment is not keeping up as interest rates are high'. Today, banks are flooded with funds and they are investing in Government Securities/Bonds. If the bank is certain that the project is good, their loan will be refunded back and the rating of the company is good, loans will be cleared at a very reasonable rate of interest. For last ten years there is a change in respect of fixing rate of interest for commercial ventures. The rate of interest for a borrower today depends on the risk weightage of the concerned borrower. For a moment, letus assume that banks are financing at 2 interest rate. Will this change the 'investment climate of the country? It will never change. The fact is there is no relation between low interest rates and 'investment climate'. When the nation is gradually turning to become a 'Banana-Republic', when the priority of the nation is 'Cow' and 'Food-habits' of the citizens it is better to forget about industrial growth.
    Reply
    1. A
      A Sen
      Jul 1, 2017 at 5:51 pm
      The very notion that 'the investment is not keeping up as interest rates are high' is wrong. Today, banks are flooded with funds and they are investing in Government Securities/Bonds. If the bank is certain that the project is good, their loan will be refunded back and the rating of the company is good, loans will be cleared at a very reasonable rate of interest. For last ten years there is a change in respect of fixing rate of interest for commercial ventures. The rate of interest for a borrower today depends on the risk weightage of the concerned borrower. For a moment, letus assume that banks are financing at 2 interest rate. Will this change the 'investment climate of the country? It will never change. The fact is there is no relation between low interest rates and 'investment climate'. When the nation is gradually turning to become a 'Banana-Republic', when the priority of the nation is 'Cow' and 'Food-habits' of the citizens it is better to forget about industrial growth.
      Reply

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