The Centre may revise upward the interest rates on small saving schemes such as PPF, National Saving Certificate and senior citizen saving schemes among others this month, given the sharp increases in the yields of govt security papers after the Reserve Bank of India raised key interest rates by nearly a percentage point recently.
It will be after two years that the small savings interest rates might see an upward revision. The last revision was done in June 2020.
Lakhs of people, especially older Indians, depend on various small saving schemes, which provide higher interest rates than most banks and are also backed by the government.
"Since the small saving schemes interest rates are linked to G-Sec yields, which have increased substantially after RBI increased policy rates, there is a possibility that small saving instruments may see a hike in rates," an official told DH.
The interest rates on small saving schemes are revised on a quarterly basis, in line with the movement in the government security (G-Sec) papers of similar maturity.
Experts says if the upward revision happens, it will be a win-win for both, the government and a large number of investors of snall saving schemes. The government's market borrowings will come down significantly.
"An increase in small savings rates could lead to higher flows into such schemes, limiting the need for additional dated market borrowings to absorb any potential overshooting of the Government of India's fiscal deficit, which we project at under Rs 1.0 lakh crore.
"This would also lessen the nervousness of the bond market, and help to cap G-sec yields. Based on our expectation of 60 bps of repo hikes in October-March of FY2023, we expect the 10 year G-sec yield to rise to as much as 7.75-8.0% during the upcoming quarter, from the prevailing 7.4%," said Aditi Nayar, Chief Economist at ICRA.
At present, the interest rate on Public Provident Fund (PPF) is 7.1%; National Savings Certificate - 6.8%; Kisan Vikas Patra - 6.9%; Suknya Samridhhi Yojana - 7.6%, Five-year Senior Citizen Savings Scheme - 7.4% and, Savings Deposit - 4%.