In a development that will benefit millions of small savers and possibly help the government raise small funds, the Centre has decided to increase the interest rates on post office savings deposits to 4 per cent from the present 3.5 per cent. The move comes close to the RBI deregulating interest rates on savings accounts.
“We have taken a decision. We will be issuing a release on that soon,” Economic Affairs Secretary R Gopalan said on Wednesday in response to a query over likelihood of raising interest rates on post office savings bank account to 4 per cent.
Small-savings schemes run by post-office, which are a major source of government’s borrowings, are losing sheen as interest rates offered on bank deposits are more attractive. Most of the banks are giving 4 per cent interest on savings bank deposits, though some lenders, following freeing of this rate by RBI, are giving a return of 6 per cent.
Shyamala Gopinath Committee, which was constituted by the government last year to review the national small savings scheme, had suggested linking of interest rates on small savings with that of the market. Reforms in the small-savings schemes is long due, as the government has yet to act on similar recommendations of the Y V Reddy Committee report submitted in 2001. This time, though, the government is giving it a serious thought after funds under the schemes declined significantly, forcing the authorities to go for additional market borrowings of over Rs 52,000 crore this financial year.
Besides other recommendations, the Gopinath panel had suggested that a raise in the interest rate for one-year small deposit scheme to 6.8 per cent from 6.25 per cent. It also sought the introduction of a 10-year National Saving Certificate scheme. The Centre had initially estimated a Rs 24,000-crore yield from NSSF, but the corpus registered a net outflow of Rs 35,000 crore during April-September.
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The deficit was 76% during the comparable period last fiscal