Interest rate on small savings schemes with government of India backing are revised quarterly based on the yield on benchmark 10-year government bonds. And as in the current liquidity crisis scenario, these are not in sync with the market rates, we may see the rates on deposits such as PPF, NSC and other instruments to head southwards for the upcoming quarter starting October. Usually, the government announces the rate on such deposits at the end of the quarter for the following quarter.
And as it is there will be a setback for the banks with the new external benchmarking norm that would set in from October 1. With the rate cut move, depositors will also be affected as some of the banks have already linked their deposit rates to repo rate.
So, while the finance ministry has given its go-ahead, any cut down on small savings can be jittery and may in adverse public reaction. It is to be noted that government has also favoured the setting in of market rates for small saving schemes.