Government to review interest rate on small saving schemes: Economic Affairs Secretary
New Delhi: In a signal to banks to cut lending rates, government said it will review the interest rate on small savings, like PPF and Post Office deposits, to bring them in line with market rates. With small saving deposits commanding an interest rate of 8.7 to 9.3 per cent, banks have been reluctant to transmit the entire policy rate cut by RBI to borrowers.
They want to keep their deposit rates attractive to match with those in small saving schemes, popular among masses. "It has also been decided that government will undertake review of small saving interest rate also," said Economic Affairs Secretary Shaktikanta Das.He said this was being done in response to the 0.5 per cent cut in key lending (repo) rate announced by the Reserve Bank earlier in the day. The Secretary said the government will review all aspects of small saving deposits. The median base lending rates of banks have fallen by only about 30 basis points despite extremely easy liquidity conditions. This is a fraction of the 75 basis points of the policy rate reduction during January-June, even after a passage of eight months since the first rate action by the RBI.
Smalls saving schemes include Post Office Monthly Income Scheme (MIS), Public Provident Fund (PPF), Post Office Time Deposit Scheme, Senior Citizen's Savings Scheme, Post Office Savings Account, and Sukanya Samriddhi Accounts.
On FPI limits, Das further said that it "would bring in greater foreign participation with predictability and would result in higher liquidity in the Indian Government Securities market...there is an appetite of rupee denominated bonds in the overseas markets."
On the State Development Loans (SDL), he said, FPI limits have been fixed for the first time at 2 per cent of the outstanding stock that would amount to about Rs 50,000 crore by March 2018.
As much as Rs 7,000 crore would flow in State Government Securities during the current fiscal, he said, adding "this is also something which goes in the line of principle of cooperative federalism which the government has been emphasising quite a lot".
