FinMin may cut interest rates on small savings schemes for April-June qtr

The govt last cut the small savings rates for the July-September 2019 quarter, except for one scheme

The finance ministry may cut interest rates on small savings schemes for the April-June quarter, Business Standard has learnt, as it looks at reducing the cost of credit and, hence, providing more liquidity for a financial system stung by a global slowdown owing to the coronavirus pandemic and another banking crisis at home.

The govenment last cut the small savings rates for the July-September 2019 quarter, except for one scheme. For the October-December 2019 and January-March 2020 quarters, the rates remained unchanged.

The government also hopes that the Reserve Bank of India’s (RBI's) Monetary Policy Committee will go for a rate cut in its next meeting, helping reduce the cost of capital even more.

“Leaving aside the regulators, there are a few things that a government can do to improve lending activity in order to boost growth and ensure the transmission of rate cuts. Small savings is one of them,” said a senior government official. The person confirmed that the possibility of a rate cut for small savings scheme was being discussed.

“There are steps being taken to clean up the financial sector, but a short-term impact of that is some avenues of credit are blocked,” said a second official. 

“There is also coronavirus and the impact it has had on the global economy. We want to improve credit activity at this time and hope that the RBI will also emulate action by central banks elsewhere,” said the official.

Officials admit that the latest episode in the financial sector — that of YES Bank — may have eroded trust in the financial sector and that lowering the cost of capital was one of the ways to get that trust back. They hope that a cut in small savings interest rates will prompt banks to cut their rates as well. Central banks of various nations, including the United States Federal Reserve and the Bank Of England, have announced surprise interest rate cuts to deal with the economic impact of coronavirus amid concerns that the slowdown from the outbreak could tip countries into recession. The next meeting of the MPC is scheduled during March 31-April 3. The notification of the small savings interest rates for April-June, which is reviewed quarterly, is expected on March 31 as well.