“We have done our part red in supporting the economy by reducing the resting rate twice. Why don’t you support us by reducing interest rates in small savings schemes?”
This seems to be the underlying message of the Bank of the Reserve of India (RBI) to the Government, going through what the former staff wrote in a recent article.
They married that in a rate flexibility cycle, when deposit rates are expected to fall, the higher savings can be a potential group source for the growth of bank deposits.
This observation comes at a time when deposits growth is delaying credit growth. The growth of the credit not fed from the programmed commercial banks (SCB) was 12 percent (interannual) to March 21, while the growth of the deposits was around 10 percent.
With the Monetary Policy Committee (MPC) by reducing the repository rate twice by 25 basic points each, in so many meetings, and changing its posture to “accommodation” of “neutral”, the central banks and the deav is to ensure that the loans of the loans of the loans of the rates of the rates of the rates of the rates of the rates of the rates of the fees of the fees of the fees of the fees of the fees rates of the rates of the rates of the rates of the rates of the rates of the rates of the rates. The rates of the loan rates of the loans of the loans of the loans of these loans of the loans of the rates of the rates of the rating rates of the rates of the rates of the loan of the rating of these loans of the qualification of the rating of the rating rates of the rating rates of the rating of the rating rates classification classification.
Therefore, RBI’s statement’s statement could be compared to a push for the government to reduce rates in small savings schemes.
After reviewing interest rates in several small savings instruments, which are linked to the secondary yields of the market in government values (G-SEC) or comparable maturities, the government, at the end of last month, decided to keep them without changes for Q16. As a result, rates in most instruments are now above the formula-based rates in the range of 16-66 basic points (BP), according to an evaluation of RBI staff. A basic point is equal to a percentage point of a percentage point.
The Government sacrifices a differential of additional interest rate of 25 BP in small savings schemes, such as the Public Security Fund (PPF), five -year deposit (TD), monthly income scheme (MI) and national savings certificate. In addition, sacrifices an additional propagation of 100 BPS for the savings scheme for older people and 75 BPS for the Samridhi Sukanya scheme.
There is no hurry for park money
Madan Sabnavis, chief economist of the Banco de Baroda, observed that although relatively higher interest rates in small savings schemes can affect the growth of banks deposits, there is no different trend or huge sums.
“These schemes are usually bad people in low -income groups and rural areas. Therefore, we don’t see too many people who go for small savings,” he said.
Small savings schemes have a positive (additional) differential against government values of similar maturities. This takes into account the interests of small savers and the absence of social security between the non -organized sections of society.
“Then, in theory, interest rates are higher in small savings schemes and get in the way of transmission of monetary policy and the growth of deposits. Butth. Butth. Boutorically, people really do not rush to park their suites in the substitute. Sabnavis.
The interest rate in a one -year TD under small savings schemes is 6.9 percent. The one-year bank TD rate, according to the weekly RBI statistical supplement, is 6-7.25 percent.
“I don’t think the one -year TD rate under small savings schemes is substantial higher than the corresponding maturity TD rate,” said Bob’s chief economist.
The pending aggregate in small savings schemes increased from ₹ 18.65 Lakh million rupees at the end of March 2024 to ₹ 19.82 Lakh Crore in December 2024. Ungramentally, this amount is not large. The incremental growth of the bank deposit was approximately ₹ 20 Lakh Crore last year.
“What RBI personnel are likely to say is that small savings rates must be lowered. Conputios, thesis rates could be an obstacle for banks to follen their TD rates. But it may not affect it.
“But I don’t think this gets in the path of transmission. In addition, from the point of view of the government, it is not a large amount that they pay for these schemes,” said Sabnavis.
Ease of operation
Karthik Srinivasan, senior vice president and group leader (grades of the financial sector), ICRA, said that it is difficult to quantify the impact of relatively higher interest rates of small savings schemes in the bank defames, since the ease of operation of the latter is significant the latter.
“You cannot simply go and withdraw your money from small savings. It is blocked. Therefore, liquidity is not really there. But it is practically a zero risk, because a government deposit is effective.
“Therefore, it could be difficult for banks to reduce the material of deposit rates when the government offers high interest rates through small savings deposits,” he said.
In such a scenario, Srinivasan emphasized, the only compensation is how much a deposit values. “Are you okay to put all your money in a small savings deposit and say:” I don’t care if I get the money later “? Maybe I would not like money in your bank account so you can immediately withdraw it for your daily Sidiy.
In the case of small savings schemes, there are certain limits, for example, for the tank scheme of the elderly, the maximum deposit limit is ₹ 30 Lakh. In the case of the monthly income scheme, the maximum investment limit is ₹ 9 Lakh in a single account and ₹ 15 Lakh in a joint account.
Srinivasan said that the RBI has been stating that if the small savings scheme rates are not reduced, then, beyond a point, it will be difficult for banks to further reduce deposit rates.
“You can always park some surplus money in small savings schemes. Let’s say you have ₹ 10 Lakh in your account. Therefore, you can keep ₹ 8 Lakh in sofa deposits (assuming it is good enough to administer your carpets in the short term) and park the rest in the government.
“Bankers can say that if a small savings instrument is sacrifices of 7.5 percent, then they will sacrifice 7.25 percent. Technical, can break that bank deposit tomorrow and take their money. At least they are providing so much liquidity.
Therefore, banks can go as close as possible to small savings scheme rates, depending on their management responsibility management and growth expectations.
Bank expert V Viswanathan observed that it is difficult to say that in the reduced interest rate rate, bank deposits can move towards small savings schemes if the rates of the first are not aligned with formula rates.
“It seems that a message is being given to the government to reduce the interest rate in small savings schemes in an exaggerated impression that the schemes are competitors of bank deposits. The reality is that savings and saidomers segments.” Moreoover, the small savings scheme portfolio is less than 9 percent of the SCB deposits in February 2025. The proportion of the five -year deposit plus the citizen deposit scheme for older people is only 1.5 percent.
It remains to be seen if the government will bite the bullet and reduce interest rates in several small savings instruments for Q2 Fy26.
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Posted on April 27, 2025
