Small Savings Schemes Interest Rates Need To Be Cut By 9-118 bps For Q1: RBI

Amid the rising interest rates of fixed deposits, the Reserve Bank of India (RBI) has claimed that the interest rates on small savings schemes or post office savings schemes need to be cut. RBI stated in its "State of the Economy" report that "The existing rates of interest on SSIs need to be reduced in the range of 9-118 bps for Q1:2022-23 to align them with the formula-based rates."

The report says "Interest rates on small saving schemes are administered and set by the Government of India. These administered interest rates are linked to market yields on G-secs with a lag and are fixed on a quarterly interval at a spread ranging from 0-100 bps over and above G-sec yields of comparable maturities. The Government of India is expected to review interest rates on small saving instruments (SSIs) for Q1:2022- 23 on March 31, 2022."

RBI has also claimed that with mounting credit demand, certain scheduled commercial banks have upped term deposit interest rates. According to the report "With credit offtake picking up, some SCBs have raised interest rates on term deposits. The extent of pass-through of policy rate reduction to the median term deposit rate (MTDR) which remained 154 bps during the period March 2020 to September 2021, dipped marginally to 150 bps in February 2022. The perceptible decline of 174 bps is discernible in the case of short tenor deposits of maturity of up to one year. Across domestic banks, robust deposit growth has enabled higher pass-through by private banks to term deposit rates compared to their public sector counterparts."

The Department of Posts manages the small savings schemes, which are overseen by the Ministry of Communications of the Government of India. These schemes include Post Office Savings Account(SB) with an interest rate of 4% p.a., 5-Year Post Office Recurring Deposit Account (RD) with an interest rate of 5.8​ % per annum, Post Office Time Deposit Account (TD) with an interest rate of 5.5% - 6.7%, Post Office Monthly Income Scheme Account (MIS) with an interest rate of 6​.6​ % per annum, Senior Citizen Savings Scheme (SCSS) with an interest rate of 7.4 ​% per annum, 15 year Public Provident Fund Account (PPF ) with an interest rate of 7.1%, Sukanya Samriddhi Accounts with an interest rate of 7.6​​% Per Annum, National Savings Certificates (NSC) with an interest rate of 6.8%, and Kisan Vikas Patra (KVP ) with an interest rate of 6.9 %. The majority of the schemes provide higher returns than bank fixed deposits, however, the digital account opening process is still lacking.