Interest Rates On Small Saving Schemes May Be Hiked For April-June Qtr

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As against the Jan-March qtr of the current CY in which the govt. slashed rates by 20 basis points or 0.2% for small savings schemes including NSC and PPF, it is highly expected that interest rates are set for a hike for the next quarter beginning April. The returns on small savings schemes are revised quarterly based on the G-Sec yields of the previous three months. This has come in after the Govt. of India Ministry of Finance notification dated February 16, 2016.

Since January 1, 2018 bond yields have averaged to 7.5% and this suggests an increase in interest rates of small saving schemes such as PPF, NSC, SCSS, Sukanya Samriddhi etc. by 15-20 bps. 1 basis points or 1 bps is one-hundredth of a percentage point.

Shyamala Gopinath committee’s recommended formula for arriving at interest rate for different SSS

In the year 2011, Gopinath committee suggested that rate on small saving schemes (SSS) should be linked to bond yields. Each of the scheme should fetch returns higher by 25-100 bps in comparison to yield of G-securities of similar maturity. Since 2016, the recalibration of rates is being done on a quarterly basis instead of the earlier annual revision of rates.

Expected hike in interest rates on different SSC

SSSCurrent rate for Jan-March'18Expected rate for April-June'18
NSC 7.6% 7.8%
PPF 7.6% 7.8%
SCSS 8.3% 8.5%
Sukanya Samriddhi 8.1% 8.25%
MIS 7.3% 7.5%

Bond yields to go up further

It is highly expected that G-securities bond yield taken as the benchmark for deciding interest rate on small savings schemes will gain further as the governments borrowing plan for the next fiscal becomes clear and cost for the same is considered.

Story first published: Friday, March 23, 2018, 14:39 [IST]
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