The interest rate on popular Public Provident Fund (PPF) and other small savings schemes are set for a downward revision. The interest rate of small savings schemes, including that of PPF, Senior Citizens Savings Scheme and girl child savings schemes Sukanya Samriddhi account, are revised every quarter, depending on government bond yields. With overall interest rate on a downward trajectory and banks revising their fixed deposit schemes lower, analysts expect that small savings schemes are set for an interest rate cut.
This month-end, the government will decide on the interest rate of small savings schemes for the October to December quarter. For the current July-September quarter, the government had lowered interest rates of PPF and other small savings schemes by 10 basis points.
"We are seeing cost of money falling globally as well as in India. We expect more cuts in deposit and lending rates in India," said Sanjiv Bhasin, executive vice-president at IIFL.
For the current quarter July-September quarter, PPF and National Savings Certificate (NSC) are yielding 7.9% annual interest while KVP 7.6%. The girl child savings scheme Sukanya Samriddhi account is fetching 8.4% while the five-year Senior Citizens Savings Scheme 8.6%.
So far this year, the Reserve Bank of India or RBI has cut its repo rate by 110 basis points and analysts expect that the central bank could go for multiple cuts this fiscal to spur growth amid a benign inflation regime.
However, some analysts don’t expect a big cut in small savings rate given the sensitivities involved in small saving schemes.
Analysts also expect bank fixed deposit or FD rates also to trend lower given slow credit growth. “With slower growth leading to gradual reduction converge between deposit and loan growth, the pressure to keep deposit rates high has reduced," Kotak Securities said in a note.
Nitin Aggarwal, banking analyst at Motilal Oswal Securities, says term deposit rates are likely to moderate further. "Banks can also revise down their savings rate as SBI has already linked savings account rate with balances of more than ₹1 lakh to repo rate and thus the difference between two set of savings account rates has widened significantly.
From October 1, the RBI has asked banks to move to a new loan regime, linking their lending rates on new floating rate home and auto loans to external benchmarks.
The deposit rates of banks have to fall for banks if lending rates have to be linked to external benchmarks like RBI's repo rate, said Mr Bhasin of IIFL added.