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Centre to cut rate for small saving schemes

Das said the government will review all aspects of small saving deposits

New Delhi: In a bad news for small savers, the finance ministry on Tuesday indicated that it may lower interest rate earned on small saving schemes (mostly schemes offered by the post offices and on PPF) to nudge banks to bring down lending rates.

“It has also been decided that the government will undertake a review of small saving interest rate also,” economic affairs secretary Shaktikanta Das said on Tuesday. While RBI has cut interest rates by 1.25 per cent this year, banks have been reluctant to fully pass the cut to consumers by lowering interest rates on loans by equal proportion. Out of 75 basis points reduction in interest rate by RBI (before Tuesday’s action), median base lending rates of banks have fallen by only about 30 basis points.

Banks tried to rationalise their stand by saying that loan rates are higher because of the higher interest that they offer on deposits. The bank blamed higher rates offered by small saving schemes for keeping their deposit rates higher.

Banks have told government that until their deposit rates don’t come down, they will not be able to pass fully benefit of lower repo rate by RBI to consumers and industry. Small saving deposits offer an interest rate of 8.7 to 9.3 per cent.

Mr Das said that this was being done in response to the 0.5 per cent cut in key lending (repo) rate announced by the RBI earlier in the day. The secretary said the government will review all aspects of small saving deposits.

Small saving schemes include Post Office Monthly Income Scheme (MIS), Public Provident Fund (PPF), Post Office Time Deposit Scheme, Senior Citizen’s Savings Scheme, Post Office Savings Account, and Sukanya Samriddhi Accounts.

However, it is to be noted that small savings are one of the source of funding/borrowing for the government. Reserve Bank governor Raghuram Rajan also said the central bank will work with the government to ensure a faster transmission and also hoped that banks will pass on the benefits to customers by lowering interest rate on loans.

( Source : deccan chronicle )
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