Rates on small saving schemes to be reduced by 50-75 basis points: Govt

It is very rare you get to see an advertisement of small saving schemes but then also more people invest in these schemes in comparison to bank deposits the reason being the interest given on these schemes and savings plans are tax free. But now these schemes won’t be as attractive as government is planning to reduce the rates on small savings scheme by 50-75 basis points to increase the bank deposits. Earlier in 2003 the rate was reduced by 100 basis points to the current eight percent. Government is thinking of setting up a committee headed by the former governor of RBI which will study the issues and recommend appropriate steps.

Analysts point out that in case the banks slash the deposit rates beyond a certain limit, then investors can get diverted towards small saving scheme. Therefore banks are abstaining from cut in the deposit rates. The industry experts say the reduction in deposit rates might not help in cut down of the lending rates also.

Some of the major small saving schemes are National Saving Certificates, Post Office Savings Account, Public Provident Fund, Kisan Vikas Patra, and Senior Citizen Savings Scheme. These saving schemes are in competition with the bank deposits as they have tax benefits under Section 80 C of the Income Tax Act.