Returns on small savings schemes, including public provident fund (PPF), National Savings Certificate (NSC) and Kisan Vikas Patra, will be lower from April 1, the government announced on Friday.
Interest rates on all nine small savings schemes will be lower by 0.1%. Interest rates are reviewed quarterly.
Until now, PPF fetched an annual interest rate of 8%, the same as the five-year NSC. Returns on Kisan Vikas Patra used to be 7.7%.
The government moved to a market-linked interest rates system for these instruments last year but also reserved the right to review them quarterly.
Sources said the move could push up longer-term deposits with banks.
“In a declining inflation scenario the lowering of returns should not be a major cause for concern,” Soumya Kanti Ghosh, chief economic adviser, State Bank of India told Hindustan Times.
A finance ministry notification said investments in the public provident fund (PPF) scheme will fetch lower annual rate of 7.9%, the same as a five-year National Savings Certificate. The existing rate for these two schemes is 8%.
Kisan Vikas Patra (KVP) investments will yield 7.6% and mature in 112 months.
The one for girl child savings, Sukanya Samriddhi Account Scheme, will offer 8.4% annually, from 8.5% at present, while it will be the same at 8.4% for the five-year Senior Citizens Savings Scheme. The interest rate on the senior citizens scheme is paid quarterly.
Term deposits of 1-5 years will fetch a lower 6.9-7.7% that will be paid quarterly while the 5-year recurring deposit has been pegged lower at 7.2%.
“On the basis of the decision of the government, interest rates for small savings schemes are to be notified on a quarterly basis,” the ministry said while notifying the rates for the fourth quarter of 2016-17 starting from April 1, 2017.
While announcing the quarterly setting of interest rates, the ministry had said the rates of small saving schemes would be linked to government bond yields.
The move is expected to prompt banks to lower the deposit rate in line with the small savings rate as offered by the government.
