In a signal to banks to cut lending rates, government today 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," Economic Affairs Secretary Shaktikanta Das told reporters here.
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.