While senior government officials have suggested a decline in small savings interest rate in line with the falling interest rates in the economy. Previously, also banks have been complaining that they are not able to reduce their deposit rates due to higher rates on small savings for preventing flight of money.
Importantly, investors in these sovereign backed schemes shall see new interest re-setting mechanism beginning the first quarter of FY20-21. The small savings comprise 12 instruments ranging from PPF, SSSY, NSC, KVP etc.
In the current regime is reset every quarter based on the yield on benchmark government bonds of similarly maturity with some spread on the senior citizens scheme.
Nonethelesss, interest rates have been calculated taking into account certain other factors such as political ones.
At the same time Atanu Chakraborty, Economic Affairs Secretary is of the view that small savings scheme rates do share some linkage with market rate, which is largely as per G-securities rate.
"The operation of that linkage is yet to be done fully, as work is pending for many quarters. There are ifs and buts...If you want to signal (linkage), do it strongly," he said, adding that linking to the G-Sec is an accepted government policy.