Depositors to suffer if savings rates linked to govt bonds

Persons depending on post office savings schemes would witness an erosion of income if the government accepts the Economic Survey's proposal to link interest rates on them with yields on government bonds.     

"Link small savings rates to government debt instruments or bank deposit rates of similar maturity. Make (small savings rate) responsive to deposit-credit market condition," said the Survey tabled in Parliament today.     

At present, the small savings scheme managed by Post Offices provide an interest rate of 6.25 per cent to 9 per cent. The popular ones like Monthly Income Scheme and Kisan Vikas Patra provide return of 8 per cent and 8.41 per cent respectively.  

On the other hand, government debt instruments like 364-day treasury bills and 10-year bonds provide returns of 5 per cent to 6.5 per cent only.  

Following the measures taken by the Reserve Bank to reduce policy rates and stimulate economy, the banks too have started reducing deposit rates which are likely to come down further in the days to come. State Bank of India currently pays an interest rate of 8 per cent for fixed deposits having maturity period of 8 to 10 years.  

Arguing for aligning savings rates with other rates, the Survey said, "high rates (are coming) in way of cutting lending rates at a pace which is consistent with ... Outlook on inflation and need for stimulating investment demand."