The Government of India has reduced the interest rates on Provident Fund, Kisan Vikas Patra and all small saving schemes across the board.
Finance Ministry had said in its February 16 statement, that The Sukanya Samriddhi Yojana, the Senior Citizen Savings Scheme and the Monthly Income Scheme are savings schemes based on laudable social development or social security goals. Hence, the interest rate and spread that these schemes enjoy over the G-sec rate of comparable maturity as of 75 bps, 100 bps and 25 bps respectively have been left untouched by the Government. On Friday, however, the rates on these three scheme were reduced by 60-70 basis points.
The Government of India has announced the highest reduction of 130 basis points in the case of one-year time deposit, as per an office order issued by the finance ministry. The rates on small savings schemes have been reduced to align them to market rates.
The new interest rates will come into effect on April 1 and will be valid till June 30.
The rate of interest on small savings are currently much higher than those offered by banks causing a disturbance in the interest rate structure that is coming in the way of interest rates declining. “The government is examining linking small savings interest rates to market interest rates. These moves should further help transmission of policy rates into lending rates,” the RBI had said in its monetary policy review.