India to link savings deposit terms to market rates

An estimated USD700 million a year could be save by the government by cutting the small savings rate.

The finance ministry had, last year, announced its plan to review interest rates on small savings after bankers said high rates on such schemes run by the government make it hard for banks to lower fixed deposit rates. Banks and RBI have been prodding the government to reduce interest rates on small savings schemes to enable banks, which compete for deposits, to reduce deposit rates.

“First effect of these changes will take place from 1st of April. They will have quarterly adjustments but whatever spreads they have over the G-Sec rates will not be altered”, said Das. While the longer-tenure schemes such as PPF will not see a major impact those with maturity of around five years, will be affected more.

Trying to calm jittery investors, Economic Affairs Secretary Shaktikanta Das today said the decline in stock markets in India is not as bad as in some other countries and the government is prepared to deal with challenges emanating from global developments.

Asked if commercial banks would pass on the benefit of the Reserve Bank of India rate cuts to customers, Das said they were free to decide on their interest rates.

Small savings schemes include Post Office Monthly Income Scheme, Public Provident Fund, Post Office Time Deposit Scheme, Senior Citizen’s Savings Scheme, Post Office Savings Account, and Sukanya Samriddhi Accounts. “Given this kind of volatility and turmoil prevailing all over the world in the global economy, the growth forecast for the current year at 7.6 per cent is definitely noteworthy and very significant”, Das said. As you know, small saving rates are linked to G-security rates and these rates are readjusted every year.

Das described growth by Asia’s third-largest economy as “robust” and said it was driven by manufacturing.

Since all currencies are declining, drop in rupee is not exceptional, he added.