Economic Affairs Secretary Shaktikanta Das has said that the government will review the framework to fix interest rate on small saving deposits like public provident fund (PPF), post office deposits, in order to bring them in line with market rates. This was being done in response to the 0.5 per cent cut in key lending (repo) rate announced by the Reserve Bank of India.
Small-saving deposits, which are collected by the government, have attractive interest rates of 8.7 to 9.3 per cent and banks have been reluctant to cut their deposit rates. This makes the banks shy of cut lending rates. They also want to keep their deposit rates attractive to match those in small saving schemes. High interest rates on PPF and post office deposits restrict the ability of lenders to reduce deposit rates, which in turn makes lending rates rigid.
Shaktikanta Das further stated that, small savings are a decision which the government has taken in response to the policy action by RBI and further RBI is working closely with the finance ministry to see the rates are transmitted by banks and financial institutions.
Smalls saving schemes include Post Office Monthly Income Scheme (MIS), Public Provident Fund (PPF), Post Office Time Deposit Scheme, Senior Citizen's Savings Scheme, Post Office Savings Account, and Sukanya Samriddhi Accounts.