Govt rolls back small savings schemes rate cut

Similarly, depositors in the senior citizen savings scheme earn 7.4 percent, which is 143 basis points higher than the five-year G-sec yield on Wednesday.Govt rolls back small savings schemes rate cut
The Centre’s hasty reversal of a planned interest rate cut on small savings schemes, ostensibly to avoid upsetting middle-class voters ahead of Assembly elections in several key states, would keep its funding costs high. Because of the rollback, the spread between small savings rates and yields on comparable government securities would remain broad.

Small savings fund expenses are not only a burden on the public purse, but they also cause banks to refrain from reducing deposit rates past a certain point. As a result, lenders are unable to pass on the benefits of money transfer to borrowers, despite the fact that the Covid-affected economy needs a huge credit boost to get back on its feet quickly.

The interest rate spread is now the widest in the case of one-year time deposits, at 175 basis points. Although one-year deposit rates can reach 5.5 percent, one-year G-sec yields closed at 3.75 percent on Wednesday.

Similarly, depositors in the senior citizen savings scheme earn 7.4 percent, which is 143 basis points higher than the five-year G-sec yield on Wednesday.

Small savings rate cuts announced yesterday were reversed on Thursday when Bengal and Assam voted in the second round of Assembly elections. Millions of middle-class depositors may have been affected by the decline in such prices.

“Interest rates of small savings schemes of the government of India shall continue to be at the rates that existed in the last quarter of 2020-2021, i.e. rates that prevailed as of March 2021,” Finance Minister Nirmala Sitharaman tweeted. Orders issued by oversight are to be revoked.”

Despite a low repo rate of 4% and sufficient liquidity in the banking system, the government has kept small savings rates unchanged for the fourth quarter in a row, through June. The aim was to entice investors to put more money into small schemes like these, which could be used to help finance a portion of the government’s high fiscal deficit at a time when the pandemic is wreaking havoc on revenue collections.

For the April-June period of this fiscal, the interest rates on the Public Provident Fund (PPF), Kisan Vikas Patra (KVP) Scheme, and Sukanya Samriddhi Account Scheme have been maintained at 7.1 percent, 6.9 percent, and 7.6 percent, respectively.

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