Interest rates on PPF, small savings cut by 10 basis points

http://www.thehindu.com/business/Industry/interest-rates-for-post-office-savings-schemes-cut/article4546909.ece

Easing of interest rates, in keeping with a downtrend in inflation, is not a one-way street as lakhs of small savers and PPF (Public Provident Fund) account holders will learn the hard way from the new fiscal year.

Starting April 1, PPF deposits along with most of the post office savings schemes will fetch reduced returns owing to a cut in interest rates by 10 basis points each. According to a Finance Ministry statement here, the interest rate on PPF will stand reduced from 8.8 per cent to 8.7 per cent with effect from April 1. Likewise, the five-year maturity Monthly Income Scheme (MIS) will earn an interest of 8.4 per cent instead of 8.5 per cent during the current fiscal ending March 31.

The only exception, however, has been made in the case of savings deposit schemes and fixed deposits of up to one year run by post offices with their interest rates kept unchanged at 4 per cent and 8.2 per cent, respectively. All other savings schemes falling under the NSSF (National Small Savings Fund) will see a reduction in interest rates by 10 basis points which would be applicable for the entire fiscal year 2013-14.

For instance, the National Savings Certificates (NSC) having five and 10-year maturity periods will now earn interest rates of 8.5 per cent and 8.8 per cent, respectively, as against 8.6 per cent and 8.9 per cent hitherto. The interest rate for SCSS (Senior Citizens Savings Scheme) also stands reduced to 9.2 per cent from 9.3 per cent. The revision in interest rates is in line with the recommendations of the Shyamala Gopinath Committee which, among other things, had suggested that the returns on small savings should be in sync with market rates determined by the returns offered by other securities.

Although the lower interest rates may come as a blow to small savers, Planning Commission Deputy Chairman Montek Singh Ahluwalia sought to justify the reduction. “In real terms, inflation is much lower than it was two years ago. So, in real terms, the interest rate is more favourable,” he said.

Explaining further on the sidelines of an event here, he said: “I don’t believe that interest rate for savers through the post office system can be de-linked completely from the interest rate system in the country…If you want [a] low [interest] rate environment, you cannot say, ‘I want higher interest rate for savers and low interest rate for borrowers’. They have probably moderated [interest rate] a little bit in line with the softening of interest rates.”