Banks Unlikely To Lower Deposit Rates After Rate Cut On Small Saving Schemes

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After the government has cut rates on small saving schemes by 20 basis points to be effective for the last quarter of the financial year 2018, the banks are unlikely to follow suit due to liquidity crunch. The credit rating agency in its report said, "Moreover, systemic liquidity is expected to remain relatively tight in Q4 FY2018, based on the anticipated pickup in credit offtake on an absolute basis".

Banks Unlikely To Lower Deposit Rates After Rate Cut On Small Saving Schemes

The rates on small saving schemes which provide a higher rate of interest than other bank deposits of similar maturity are revised on a quarter on quarter basis based on the yield on government bonds. And this time as the rates on small saving schemes have been revised against the trend in yield on G-sec of different maturities which have moved higher, there is likely an uncertainty in the future trend of returns from small saving schemes.

Except for the SCSS and savings deposits, returns on all other small saving schemes including PPF, KVP, NSC and Sukanya Samriddhi account have been lowered.

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