BENGALURU: Get ready as your returns from bank fixed deposits are going to be impacted. The government is set to reduce interest rates on small savings products such as public provident fund and National Savings Certificate over the next few days. However this move will pave the way for banks to pare lending rates in the coming months and reduce the EMI burden, according to indiatimes.com.

This is a new formula in which we will see small savings rates linked to returns on government securities of comparable maturity, with the reduction expected to be up to 50 basis points. Now the finance ministry is finalizing product-specific rates and according to some sources, the impact would be higher in case of maturity period of less than five years.

However, these new rates are expected to be notified over the course of next few days with the government set to announce quarterly revision instead of an annual reset, which is the norm currently. The RBI and banks have been seeking a reduction in small savings rates, arguing that PPF and other products offered higher returns when compared with fixed deposits, resulting in a flight of funds to the government schemes.

As a result, banks have been forced to maintain higher deposit rates, making it difficult for them to pass on the benefits of lower policy rates. Bankers have said higher small savings rates have meant that lending rates have been cut by a lower extent compared to RBI's policy rate reduction of 125 basis points last year.

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