The government on Tuesday steeply cut small savings interest rates for April-June period by up to 140 basis points. This includes the senior citizens' savings schemes, which have been cut by 1.2 percentage points to 7.4%.
The move is a setback to the small savers, especially the retirees, who depend on such savings to finance their expenses. But it will help banks in better transmission of RBI rate cuts.
It will also help banks cut their deposit and loan rates, necessary for lending to individuals and companies.
100 basis points is equivalent to one percentage point.
After the rate cut, the interest rates on the Public Provident Fund (PPF) and Sukanya Samriddhi Yojana have come down by 80 basis points to 0.8% each.
PPF will now earn 7.1% from the earlier 7.9%, while Sukanya Samriddhi will fetch 7.6% from an earlier 8.4%.
The sharpest of rate cuts of 140 basis points or 1.4 percentage points has been effected on the post office time deposits. The rate cut comes days after the RBI reduced the key policy repo rate by 75 basis points.