New Indian-Chennai News + more

Members Login
    Remember Me  
Post Info TOPIC: Govt may link PPF returns to bank deposits, RBI rates


Status: Offline
Posts: 23757
Govt may link PPF returns to bank deposits, RBI rates

Oct 04 2015 : The Times of India (Chennai)
Govt may link PPF returns to bank deposits, RBI rates
New Delhi:
The Centre may link interest rate on public provident funds (PPF) and post office deposits to bank deposit rates or RBI's repo rate and allow for quarterly or half-yearly reset in returns on small savings schemes.

The move is part of the review launched by the finance ministry , which currently uses the returns on government securities to annually fix the rates for small savings schemes, a critical element of household savings in the country .The government is looking to lower interest rates on a large number of small savings schemes, while building in safeguards for senior citizens and the girl child, following a reduction in key policy rates by RBI.

“Real interest rates are probably higher today . So, that needs a correction,“ economic affairs secretary Shaktikanta Das told TOI. “In a high inflation regime, you had a certain interest structure for banks as well as the small savings schemes. But when inflation is down, interest rates naturally need a correction,“ said Shaktikanta Das, adding that a final decision is yet to be taken. He said the finance ministry is internally looking at various options and it wanted the interest transmission to take place in the entire economy . “Whether to link it to g-secs or something else will have to be examined. There have been suggestions that it should be linked to the repo rate, it should be linked to the bank deposit rates,“ Das said in his first interview after taking over as economic affairs secretary .

In recent months, banks have dragged their feet in reducing deposit rates, citing higher returns offered on small savings schemes. The reluctance to reduce deposit rates has also resulted in higher lending rates. Compared to RBI's rate reduction of 125 basis points (100 basis points equal a percentage point), banks have only reduced lending rates by around 70-75 basis points. Following RBI's latest move to reduce key policy rates by 50 basis points, lenders such as State Bank of India have pared deposit rates by 25 basis points.

Currently , a fixed deposit with SBI can fetch you a maximum 7.5% interest rate if you park your money for 465 days to less than three years.In contrast, a three-year term deposit in a post office will earn 8.4%, which is 90 basis points more, while Sukanya Samridhi Yojana or a Senior Citizen Savings Scheme earn 9.2-9.3%. “We will ensure that the interest for the schemes for the benefit of senior citizens, small savers and the girl child are suitably factored in,“ Das said.

As a result of the higher rates, there has been a rush of funds to the governmentrun small savings schemes.

The National Small Savings Fund has seen its corpus more than double to almost `13,000 crore during AprilJuly , compared with `5,339 crore a year ago.

Of this, a bulk of the funds come through PPF , which has a 15-year lock-in, and the mop up has again risen more than two times to `5,423 crore during the first more months of the financial year from `2,668 crore in the corresponding period last year, according to data with the Controller General of Accounts.



Page 1 of 1  sorted by
Quick Reply

Please log in to post quick replies.

Tweet this page Post to Digg Post to

Create your own FREE Forum
Report Abuse
Powered by ActiveBoard