The Government Of India has slashed the interest rates on Provident Fund , Kisan Vikas Patra And On Small Saving Schemes. The government has reduced these rates on Friday on all small saving schemes across the board. The GOI has announced the highest reduction of 130 basis points in the case of one-year time deposit, as per an office order issued by the finance ministry. The rates on small savings schemes have been reduced to align them to market rates.
The new rates will come into effect on April 1 and will be valid till June 30. Please see the below image for all the Interest rate cut imposed by the GOI on Small Saving Schemes.
Finance Ministry had said in its February 16 statement, that The Sukanya Samriddhi Yojana, the Senior Citizen Savings Scheme and the Monthly Income Scheme are savings schemes based on laudable social development or social security goals. Hence, the interest rate and spread that these schemes enjoy over the G-sec rate of comparable maturity as of 75 bps, 100 bps and 25 bps respectively have been left untouched by the Government. On Friday, however, the rates on these three scheme were reduced by 60-70 basis points.
Government stated that such rates limit the banking sector’s ability to lower deposit rates in response to the monetary policy of the RBI. The Government of India had made a case for lowering rates on some schemes. The RBI has cut the repo rate, by 125 basis points since last January, but the banks reduced their lending rate by only about 70 basis points. The RBI is slated to review its monetary policy on April 4.
This cut in rates is being done to make small-saving interest rates more market-linked and more market-aligned. The rate of interest on small savings are currently much higher than those offered by banks causing a distortion in the interest rate structure that is coming in the way of interest rates declining. “The government is examining linking small savings interest rates to market interest rates. These moves should further help transmission of policy rates into lending rates,” the RBI had said in its monetary policy review.
Extra Info :
RBI Governor : Dr. Raghuram Rajan
Dy. Governor : Shri S. S. Mundra, Shri R. Gandhi, Dr. Urjit R. Patel and Shri Harun R. Khan