Small Savings Schemes rate cut is expected

Small Savings Schemes rate cut is expected

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https://www.fundstiger.com/small-savings-schemes-interest-rate/
The government is likely to announce today interest rates of small savings schemes like PPF (Public Provident Fund), Sukanya Samriddhi account, and Senior Citizens Savings Scheme for the October to December quarter. And in most likelihood, there could be a downward revision due to a general decline in interest rates. The interest rate of small savings schemes, including that of PPF, and girl child savings scheme Sukanya Samriddhi account, are revised every quarter, depending on government bond yields.
Earlier, for the July-September quarter, the government had lowered interest rates of PPF and other small savings schemes by 10 basis points.
Banks have been lowering their fixed deposit interest rates, with overall interest rates on a downward trajectory.
For the current quarter July-September quarter, PPF and National Savings Certificate (NSC) are yielding 7.9% annual interest while KVP 7.6%. The girl child savings scheme Sukanya Samriddhi account is fetching 8.4% while the five-year Senior Citizens Savings Scheme 8.6%.
However, analysts don’t expect a big cut in small savings rate given the sensitivities involved in small saving schemes. Sukanya Samriddhi and Senior Citizen Savings schemes are expected to fetch higher returns than other small savings schemes given the social objectives of the scheme.
The RBI will announce its monetary policy decision on Friday and is widely expected to reduce its benchmark repo rate further. So far this year, the RBI has cut its repo rate by 110 basis points.
Some analysts have said that higher small savings rates have impeded transmission of RBI rate cuts to borrowers. In a note Edelweiss said: “We believe that credit rate cannot fall because small savings are hindering deposit rates from falling is a shallow argument. Despite the recent spike, small savings are still too small (at 8% of total bank term deposits) to impact the rates.”
Small savings scheme: Why rate cut is expected
  • It is expected that the government may cut interest rates of small savings schemes. In the July-September quarter, the government had cut small savings schemes rates by 0.1 per cent.
  • Since April 2016, it has been the government’s declared goal to align the small savings schemes with the yield of Government Securities (G-Sec). However, in the last one year, the small savings scheme rates have not been cut much even as the G-Sec yield has continued to decline. Currently, the G-Sec yield is at around 6.8 per cent, which is about 1.4 per cent down as compared to last year.
  • In the first two of the last five quarters, the small savings rates were increased by 0.3-0.4 percentage points and remained unchanged in the following two quarters. In the last quarter, the small savings rates were cut by 0.1 percentage points across all schemes.
  • It is expected that the government may decide to cut the rate further this time to bridge the gap between small savings schemes and G-Sec yield.
Hence, next three-four days may be the best time for you to lock-in an FD account at a higher amount.
Small savings include post office deposits, Public Provident Fund (PPF), Senior Citizen’s Savings Scheme (SCSS), National Savings Certificate (NSC), Kisan Vikas Patra (KVP) and Sukanya Samriddhi Yojana (SSY)
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  2. lakshmiSeptember 30, 2019 at 5:07 AM

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