The government has decided to review
the small savings rates, which remain sticky at 8.4-8.5%, limiting banks'
ability to lower deposit rates and slowing down the transmission of Reserve
Bank of India's softer monetary policy decisions. "It has been decided that with
regard to the transmission of the rates, the government will undertake a review
of the small savings rate also," economic affairs secretary Shaktikanta
Das said."Small savings is a decision the government has taken in response
to the policy rate announced by the RBI," he said.
Banks
reduced deposit rates aggressively over the last three quarters with some
lowering term deposit rates by 50-75 bps but matching cuts in lending rates
come with a lag. But they have time and again whined that high interest rates
on small savings such as public provident fund or post office monthly income
schemes are stopping them from lowering deposit rates beyond a point and this
inability prevents them from making loans cheaper.
Senior citizens get 9.3% from post
offices, 100-130 bps higher than what they get from most state-run banks.
"A major part of small savings comes from the risk averse segments and for
them it is the means of subsistence. The country's largest bank, State Bank of
India, cut deposit rates by 25 bps across maturities effective from October 5.
Its medium-term deposit rate is 7.75%
at present while small savers enjoy 8.4% rate for deposits below five years
from post offices and for the popular monthly income scheme. Public provident
fund offers 8.7% rate a year.
Source : The Economic Times
