Interest rate on small savings schemes cut

Our Bureau Updated - March 12, 2018 at 03:48 PM.

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The Government set its sights lower on small-savings collections for 2013-14, hoping to collect Rs 5,800 crore against the Rs 8,600 crore it mopped up last fiscal. Yet, it has cut interest rates on most schemes effective April 1.

Barring savings deposits and one-year post-office time deposits, all other schemes will fetch 10 basis points (or 0.10 percentage points) lower interest. The rates on all schemes, except PPF, are fixed. That is, the rate remains the same from the time of the investment till maturity.

Importantly, the new rates will remain in force for one year, the change becoming applicable after April 1 of the next year.

This is the first instance of a reduction in the rates after the new system of rate alignment came into effect from December 1, 2011. .

Based on the recommendations of the Shyamala Gopinath panel, the new system prescribes aligning the interest rates to the rates on government bonds of similar maturities with a spread of 25 basis points (or 0.25 percentage points). But there are two exceptions. The spread on the 10-year NSC and the Senior Citizens Savings Scheme would be 100 basis points or one percentage point.

The rates have been lowered as the yield on Government Securities in 2012 were lower than in 2011. According to market sources, the annualised average yield on five-year G-Secs was down to 8.41 per cent in calendar 2012 from 8.51 per cent in 2011. Similarly, the annualised average yield on 10-year G-Secs was down to 8.45 per cent from 8.51 per cent.

> shishir.sinha@thehindu.co.in

Published on March 25, 2013 17:23