Govt cuts interest rates on small savings for Jul-Sep

The Centre on Saturday lowered interest rates on small savings schemes for July-September period by 10 basis points or 0.1% each on all small saving schemes including NSC, PPF and senior citizen savings schemes.

The announcement comes less than a week ahead of the union budget on July 5. Interest rates on small savings are notified on a quarterly basis.

This is for the first time in 2019 calendar year that the government has cut interest rates on small savings, which will fetch lower returns to savers. In January-March and April-June period, the Centre had left rates unchanged on small savings.

The interest rate for the five-year term deposit has been lowered to 7.7% in place of the earlier 7.8%. On five year recurring to 7.2% from 7.3% and on senior citizens' scheme to 8.6% from the earlier 8.7%.

The interest rate on these three schemes is paid quarterly.

However, interest on savings deposits has been retained at 4% annually.

Public Provident Fund (PPF) and National Savings Certificate (NSC) will fetch an annual interest rate of 7.9% as compared to existing 8%, while Kisan Vikas Patra (KVP) will yield 7.6% and mature in 113 months as against 112 months in the previous quarter.

The girl child savings scheme Sukanya Samriddhi account will earn an interest rate of 8.4% in place of 8.5%.

Term deposits of one-three years too will fetch 01% lower interest rate.

The rates of small savings schemes have been linked to government bond yields since 2016. The move is expected to see a better transmission of banks lowering their deposit rates.

In the minutes of the meeting of the Monetary Policy Committee from earlier this month, Reserve Bank of India Governor Shaktikanta Das pointed out that interest rates on small savings schemes were "higher than the prescribed formula".

Bankers have cited high-interest rates for small savings schemes as an obstacle to reducing their deposit rates, and in turn, their lending rates.