Rates on small savings schemes may fall further

Interest rates on small savings schemes are set to fall further in the next few quarters with yields on government bonds coming down. Last month, while revising the rates, the government had said the returns will now be benchmarked to government bonds and reviewed once every three months.

RBI governor Raghuram Rajan's monetary policy on Tuesday brought down yields on government securities marginally. The returns on government bonds are set to drop further as the RBI moves to improving liquidity in the money market.

According to India Ratings, interest rates on small saving schemes in the second quarter (July-September) of 2016-17 fiscal are likely to be 20-25 basis points lower than in the first quarter (100 basis points = one percentage point). This is because of the measures announced by Rajan in his policy this week to improve liquidity. The new rates came into effect from April1and resulted in a rush for investments in the last week of March.Small savings directly compete with and offer higher rates than fixed deposit schemes of banks. Rajan said that the rush for small savings and tax-free bonds resulted in a slower growth in deposits. He said the new rates continued to be attractive and may need to come down further.

  

Source:-The Economic Times