Centre raises interest on small savings schemes

Centre raises interest on small savings schemes

Last Updated: Tue, Mar 27, 2012 04:20 hrs
An employee arranges Indian currency notes at cash counter inside a bank in Agartala

The government on Monday increased the interest rates on fixed deposits under small savings schemes, including the Public Provident Fund (PPF), with effect from April 1, in line with the recommendations of the Shyamala Gopinath committee. The increase is aimed at linking these rates with the interest on government securities. After their dismal performance this financial year, the move may attract investors back to these schemes, analysts said.

However, the rate on savings schemes has been retained at four per cent, according to a finance ministry statement. Most banks also offer savings deposits rates of four per cent, barring a few that include YES Bank and Kotak Mahindra Bank, which offer interest of 5.5-7 per cent.

Interest rates on various fixed deposits and other schemes have been upped in the range of 0.2 to 0.5 percentage points. New rates will be in the range of 8.2 per cent to 9.3 per cent. However, 9.3 per cent rate is for senior citizen savings scheme. Otherwise, the highest rate of interest is 8.9 per cent on the National Savings Certificate (NSC). Fixed deposit rates offered by banks range from 7 per cent to 9.25 per cent.

Interest on PPF would be raised from 8.6 per cent to 8.8 per cent.

These small savings schemes are also tax-free. This financial year, the government has to go for additional market borrowing of more than Rs 90,000 crore. A major reason for this was deposits under small savings schemes dwindled, owing to the high interest rates offered by banks. In the current financial year, deposits under small savings are projected to decline to Rs 7.81 lakh crore in the Revised Estimates, compared with the Budget Estimates of Rs 8.64 lakh crore.

Anis Chakravarty, director with Deloitte, Haskins & Sells, said the ministry's move was bold, but it would help reverse the trend of high market borrowings this financial year only to an extent. Tax realisations and non-tax revenues, besides disinvestment proceeds, were much bigger issues he added.

The Budget has estimated market borrowings of Rs 5.69 lakh crore in the next financial year, compared with Rs 5.10 lakh crore in the Revised Estimates for this financial year. In the Budget Estimates, market borrowings were pegged at Rs 4.17 lakh crore. The government has said it may borrow Rs 20,000 crore less than the Budget Estimates in the next financial year.

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