Recent data from the Reserve Bank of India (RBI) indicate that people are continuing to repose faith in small savings schemes with the corpus clocking a decent annual growth of 13.8 per cent up to February 2024 reaching ₹18.1 lakh crore.

Small savings schemes

Small savings schemes are savings instruments floated by the Centre with the twin objective of helping finance its expenditure as well as to inculcate the habit of saving regularly among investors. The interest rates for these schemes are linked to the government bond yields and need to be adjusted quarterly, though that seldom happens.

Historical data show that in February 2015, the outstanding balance on small savings was ₹6.2 lakh crore, which rose to ₹10.4 lakh crore in February 2019. The trend continued with the outstanding amount reaching ₹15.9 lakh crore in February 2023, a 12.1 per cent y-o-y growth and finally achieving ₹18.1 lakh crore in February 2024 at 13.8 per cent growth.

Among the 20 small savings schemes, seven have recorded growth between 9 per cent and 11 per cent over the past year. These include Post Office Savings Bank Deposits (9 per cent) and Post Office Recurring Deposits (11 per cent), among others. Most of these schemes have seen interest rates ranging between 4 per cent to 9 per cent.

“We have seen participation from B30 cities (locations beyond top 30 cities) rise even in equity, but even then, the small savings schemes remain attractive,” Feroze Azeez, Deputy CEO of Anand Rathi Wealth, said.

“In the new tax regime, many of the exemptions allowed under the old scheme which is savings oriented is not allowed. Thus, the continuous flow of money into the savings scheme indicates households require new avenues for their financial savings,” he added.

Highest outstanding balances

As per RBI data, Post Office Time Deposits, Monthly Income Scheme, and Kisan Vikas Patras - 2014 have the highest outstanding balances among all small savings schemes in February 2024. Sukanya Samriddhi Yojana Account (SSA) and the Senior Citizens Scheme 2004 have seen the highest growth among all schemes.

The outstanding balance in SSA grew 41 per cent from ₹77,472 crore in February 2023 to ₹1 lakh crore in February 2024. The Senior Citizen Scheme 2004 saw outstanding balance rise from ₹1.3 lakh crore to ₹1.7 lakh crore, with a 28 per cent growth during the same period. The interest rate on both these schemes was 8.2 per cent, the highest among all.

“The ratio of outstanding small savings to outstanding deposits is at 11 per cent in FY23, which was just 4.9 per cent pre-pandemic. So that itself reflects quite a shift in savings pattern of households,” an economist with a public sector bank noted. The higher inflows toward small savings also indicate the rapid financialisation of the economy, the person added.

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