Your small savings interest income may fall if government heeds RBI advice

By: |
February 10, 2017 6:18 PM

A Ministry of Finance official has reportedly said that some more reduction in small savings rate is warranted and that the government is likely to review small saving rate for the next quarter. The government has already reduced interest rates on small savings in two straight cuts over the last one year.

RBI asked the government to ensure better transmission of previous policy rate cuts to reflect in the interest rates for bank lending and small saving deposits. (Image: Reuters)RBI asked the government to ensure better transmission of previous policy rate cuts to reflect in the interest rates for bank lending and small saving deposits. (Image: Reuters)

Your small savings in various government schemes and bank deposits may soon end up earning less money as the government is reportedly in favour of moving along the lines of the Reserve Bank of India Governor Urjit Patel’s call to reduce interest rates on small savings.

“Some more reduction in small savings rate is warranted,” ET Now reported on Friday, citing an unidentified official of the Ministry of Finance. “The government is likely to review small saving rate for the next quarter,” ET Now tweeted citing the official.

Earlier this week, the Reserve Bank of India chose to hold the key policy rate at the existing level, but Governor Urjit Patel asked the government to ensure better transmission of previous policy rate cuts to reflect in the interest rates for bank lending and small saving deposits. He asked the government to adjusted the small savings rate by fully implementing the earlier formula based on the changes in yields on government securities of corresponding maturity.

You may also like to watch:

Scope for cut

This means that while the interest rates on small savings have reduced, there is scope for cutting those further as the fall in the yields of the similar government securities has been sharper. The government has reduced interest rates on small savings in two straight cuts over the last one year.

The PPF (public provident fund) now earns 8% interest for the second half of the current financial year, as compared to 8.7% in the last financial year. Sukanya Samriddhi Scheme, announced by Prime Minister Narendra Modi in his first Union Budget, now earns 8.5%, down from 9.2% in the last financial year.

The interest rate on 5-year time deposits is down to 7.8% from 8.5%, and that on 5-year NSCs has fallen to 8% from 8.5%. By comparison, the yield on a 5-year G-Sec has fallen from 7.378% in April 2016 to 6.179% early January this year.

You may also like to watch:

Small woes

The news comes close on the heels of another report saying that the banks may reduce interest rates on saving account deposits for the first time in memorable history. (Read the full story: Another demonetisation blow to honest taxpayer: Your bank deposits to earn less?)

Earlier last week, Finance Minister Arun Jaitley set a target of small savings worth Rs 1 lakh crore for the next financial year. The government has mobilised Rs 90,000 crore in small savings for the current financial year.

 

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Diesel at Rs 100 mark in Rajasthan; Karnataka sees Rs 100 per litre petrol
2Broad-based approach: Here’s how it differs from liquidity-based approach; benefits investors
3Earnings expectations warrant near-term caution but medium-term outlook positive | INTERVIEW