On the eve of the central bank’s likely hike in the repo rate, the finance ministry on Thursday raised the interest rates, albeit for select small savings schemes, for the December quarter after a gap of two years.
The hikes, however, were only to the tune of 10-30 basis points from the September quarter level (see the chart). The rates others, which have been considered relatively high, remain unchanged.
The move is in sync with the rising yields on government securities. The announcement comes on a day when the finance ministry also declared a cut of Rs 10,000 crore in its FY23 gross market borrowing plan, which may increase its reliance on the National Small Savings Fund (NSSF) to finance a part of its wide fiscal gap.
Interestingly, the hike is effected after it’s almost certain that the Reserve Bank of India will raise the repo rate aggressively for a fourth time this fiscal on Friday, having already increased it by 140 basis points since May. In recent quarters, the rates were not revised up because, as banks had been saying, these were kept at elevated levels for long.
Analysts said the government probably believes that even with the marginal hike, it can ensure decent inflows of funds into the NSSF for its use.
The interest rate on two-year time deposit has been raised by 20 basis points to 5.7%; on three year-deposits, it has been hiked by 30 basis points to 5.8%. The rate for the senior citizen savings scheme has been hiked to 7.6% from 7.4% and that on monthly income account scheme raised by just 10 basis points to 6.7%. Kisan Vikas Patra will fetch 7% (with maturity after 123 months), against 6.9% (maturity after 124 months).
The government has budgetted its offtake from the NSSF to drop to Rs 4.25 trillion in FY23 from a record Rs 5.92 trillion in FY22.
The interest rates on Public Provident Fund (PPF) and the Sukanya Samriddhi Account Scheme have been retained at 7.1% and 7.6%, respectively, for the October-December period. Similarly, the interest rate on one-year, five-year, term deposits and recurring deposit have been kept unchanged at 5.5% and 6.7%, respectively.
The government had last cut the small savings rates (in the range of 70-140 basis points) in the first quarter of FY21. These rates are notified every quarter.
Last year, the Centre was forced to reverse swiftly a proposed cut in interest rates on small savings schemes, ostensibly to not upset middle-class voters amid Assembly polls in states like West Bengal and Assam.