The interest rate on small saving schemes (SSS) such as public provident fund (PPF), national savings certificate (NSC), and kisan vikas patrika (KVP) remain unchanged for the first quarter of 2018-2019.
In 2011 the government linked the interest rates on small savings schemes to the government bond yields but were then revised once a year. Due to annual revision of the rates, it was noted that there was a mismatch between the yields and the rates. Therefore, from April 2016 onwards interest rates are reset every quarter based on the average yield on government bonds of similar maturity papers in the previous quarter. The government also pays a mark-up of around 25 to 100 basis points over and above the market yield. For example in case of PPF mark up is 25 bps. One basis point is one hundredth of one percentage.
The Ministry of Finance stated in a press release, “In the last quarter (January-March) the government cut the interest rate on several post office schemes by 0.2 percentage points. The rates of interest on various small savings schemes for the first quarter of financial year 2018-19 staring 1st April, 2018 shall remain unchanged from those notified for the fourth quarter of financial year 2017-18.”
It was expected that with the yield on government bonds moving up the government would increase the rates in the first quarter of the financial year. Belying the notion the government has kept the rates unchanged.
Yields on the government bonds started rising towards the end of 2017, and last week it touched the high of 7.72%. However, yields started declining after the government announced that its borrowings up to September would be about 48% of the overall target for the financial year. Generally, the government completes 60% of the targeted amount in the first six months. The overall borrowing has also been reduced as the government plans to raise Rs 6.05 lakh crore for FY19, compared with Rs 5.99 lakh crore in FY18. Following the news, yields on government bond crashed by 29 basis points to 7.33 per cent, which is the biggest single-day fall since November 25, 2013.
Interest rates on small saving schemes have dropped to a multi-decade low. But on the positive side interest rate on fixed deposits have started to rise. With effect from March 28, 2018, State Bank of India has increased its term deposit rates between 10 basis points and 25 basis points for fixed deposits of various tenures. Fixed deposits below Rs1 crore, for a tenure longer than two years but less than 3 years, will have an interest rate of 6.60 % against the earlier rate of 6.50%. For senior citizens the interest rate is 7.10 per cent as compared to the earlier rate of 7 per cent.