Reduction of Interest Rates on Public Provident Fund and Savings Deposit

Reduction of Interest Rates on Public Provident Fund and Savings Deposit

Interest Rates on various Small Savings Schemes for the 1st Quarter of 2016-17 notified;. Additional Interest Rate spreads which the Government allows on Small Savings Schemes like PPF, Senior Citizen Savings Scheme, Sukanya Samridhi Scheme and NSC etc. are being continued and included in the rates notified today.

From the year 2012-13, the interest rates on various Small Savings Schemes (SSS) are recalculated and notified in the month of March every year. These rates are applicable for the next financial year. This is being done in line with the recommendations of the Shyamala Gopinath Committee to ensure that the interest rates of Small Savings Schemes are market linked.

Accordingly, as done in the previous years, the interest rates for various Small Savings Schemes were due for recalculation in March 2016. As notified on 16th February, 2016, instead of annual resetting of interest rates for the next financial year, the interest rates from now on will be reset every quarter based on the G-Sec yields of the previous three months. Consequently, the interest rates for various Small Savings Schemes were recalculated with reference to the G-Sec yields of equivalent maturity for the months December 2015 to February 2016. Based on this calculation, the interest rates on various Small Savings Schemes for the 1st quarter of 2016-17 have been notified today. The rates of interest on various small savings schemes for the First Quarter of Financial Year 2016-17, on the basis of the interest compounding/payment built-in in the schemes, shall be as under:

This is a formula driven process.

Further, as notified earlier, the additional interest rate spreads which the Government allows on Small Savings Schemes like PPF, Senior Citizen Savings Scheme, Sukanya Samridhi Scheme, NSC etc. are being continued. The additional spread for these Schemes are 25 basis points for PPF, 100 basis points for Senior Citizen Savings Scheme, 75 basis points for Sukanya Samridhi Scheme, 25 basis points for five year time deposit, 25 basis points for National Savings Certificate and 25 basis points for Monthly Income Scheme. These additional interest rate spreads are being continued and are included in the rates notified today.

The quarterly revision of interest rates will ensure that the interest rates under Small Savings Schemes are more dynamically related to the current market rates, thereby enabling the Banks to move their interest rates in line with current money market rates.

Source: PIB News

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Govt. likely to increase interest rate on PPF

   The government is likely to raise returns on small savings schemes such as public provident fund (PPF) over the next two-three months with sharpest rise of up to 70 basis points likely in post office deposits.

   Based on present calculations PPF, the most popular scheme, would see interest rate rise by 20 basis points (100 basis points = one percentage point) to 8.2% annually instead of 8% now while senior citizens can hope to get 8.95%

   The only scheme which is going be hit would be the five-year Senior Citizen's Savings Scheme (SCSS), where the return is expected to decline by 30 basis points.

   A government panel headed by Reserve Bank of India deputy governor Shyamala Gopinath submitted its report to finance minister Pranab Mukherjee . The panel has called for several changes in the structure of small savings schemes and has recommended abolition of Kisan Vikas Patra as well as raising the investment limit in the PPF scheme to Rs 100,000 from the present Rs 70,000.

   In case of two other schemes – the Monthly Income Scheme ( MIS ) and the National Savings Certificate (NSC) – the rates would remain the same but their tenure would be cut from six years to five.

   The rates would be applicable if the new formula, which is linked to the three-year average rate on comparable government bond, is applicable from July 1.

   A senior government official told TOI that in case of schemes such as NSC, the interest rate on offer would be the one applicable in the year of purchase. So, if you invest Rs 1 lakh in NSC now, you would get 8% but it could rise to, say, 8.5% for those purchased in the next financial year.

   The interest rate payable on PPF would, however, be fixed at the start of every financial year and the entire corpus would be entitled to the same rate, as is the case with your money lying with the Employees Provident Fund Organisation.

   Though the government would take a hit of around Rs 650 crore due to the revamp – which also involves resetting interest rates for state governments that use bulk of the proceeds – the finance ministry is keen to move to the new mechanism at the earliest. "It's more transparent and offers benefits of the rising interest rate environment," said an official.

   With most states already on board, the potential risk of derailment is unlikely, the official said. Besides, the government does not expect any political opposition as the returns are rising for almost all schemes.

   The official said the panel had consulted all stakeholders and the panel included the finance secretaries of West Bengal and Maharashtra. "The recommendations will be discussed in the government and we can implement it in the next 2-3 months," said the official, who did not wish to be identified. Recommendations of a similar panel had to be forwarded to the National Development Council (NDC) as some states had protested against the proposed changes.

   "The present recommendations benefit investors. We are also cutting down on agents' commission. Overall, the recommendations are balanced and links the interest rates to market rates. We don't anticipate any opposition," the official said.

Courtesy:- Economic Times

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