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Government slashes interest rates of small savings scheme, PPF for April-June quarter

The government on Tuesday slashed the interest rates on small savings schemes, including NSC and PPF, by up to 1.4 percentage points for the first quarter of 2020-21, in line with moderation in bank deposit rates.

In an effort to cushion the coronavirus impact on the economy, the Reserve Bank of India announced a surprise .75 per cent cut in its key interest rate on Friday.

At present, the Ministry of Finance offers nine types of small saving schemes, including Public Provident Fund (PPF), Kisan Vikas Patra and Sukanya Samriddhi. With effect from April 1, these schemes will earn lower interest during the period.

The government usually reviews the interest rate on small savings scheme every quarter based on bond yields.

With this reduction, term deposits of 1-3 years will now earn an interest rate of 5.5 per cent as against 6.9 per cent, down 1.4 percentage points, the notification said.

While the interest rate on savings deposit was kept intact at 4 per cent, the rate for PFF was reduced by 0.8 per cent to 7.1 per cent. In the previous quarter PPF earned 7.9 per cent interest.

The interest rates on five senior citizen savings scheme have also been reduced drastically by 1.2 per cent to 7.4 per cent from the existing 8.6 per cent. The interest on the senior citizens scheme is paid quarterly.

The girl child savings scheme Sukanya Samriddhi Yojana account will earn a lower rate of 7.6 per cent as against 8.4 per cent during the first quarter of the next financial year 2020-21.

The interest rate moderation for National Savings Certificate (NSC) for the next quarter is 1.1 percentage points, it said. The rates will now stand at 6.8 per cent for NSC.

Similarly, the Kisan Vikas Patra (KVP) will give a lower yield of 6.9 per cent with enhanced maturity period of 124 months as against 7.6 per cent and 113 months maturity at present.

Last month, Economic Affairs Secretary Atanu Chakraborty had hinted at revision in small savings rates for the next quarter, in line with market rate for speedier transmission of monetary policy rate. Stating that the Shyamala Gopinath Committee report has been accepted, but operation of the linkage was still in the works, he had said “wait for this quarter interest rates. That will give you a fairly good indication.”

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