Govt cuts interest rates on small saving schemes by 0.25%

Government on Tuesday cut interest rates on small saving schemes of 1, 2 and 3 year term deposits, Kisan Vikas Patra and 5-year recurring deposit by 0.25 per cent.

However, interest rate on PPF, 5-year National Savings Certificate (NSC), monthly income schemes (MIS), `Sukanya Samriddhi Yojana' and the `Senior Citizen Savings Scheme' have been left untouched under the new policy.

The government also decided to revise interest rates on small saving schemes on a quarterly basis beginning the next financial year, ie, 1 April 2016, in order to align the small saving interest rates with the market rates of the relevant government securities.

The revised interest rate policy will affect returns on small saving schemes, including post office Monthly Income Scheme (MIS), PPF, Post Office fixed Deposit Scheme, Senior Citizens Savings Scheme, Post Office Savings Account and Sukanya Samriddhi Accounts.

The National Savings Schemes (NSSs) regulated by the ministry of finance offer complete security of investment combined with high attractive returns.

These schemes also act as instruments of financial inclusion, especially in the geographically inaccessible areas due to their implementation primarily through the post offices, which have reach far and wide.

The small savings interest rates are perceived to limit the banking sector's ability to lower deposit rates in response to the monetary policy of the Reserve Bank of India.

In the context of easing the transmission of the lower interest rates in the economy, the government also has to take a comprehensive view on the social goals of certain National Small Savings Schemes.