Govt may cut small saving schemes' rates

By siliconindia   |   Wednesday, 17 June 2009, 19:40 IST   |    6 Comments
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Govt may cut small saving schemes' rates
Bangalore: Though, the small saving schemes are less publicized, they attract more depositors than bank deposits as the interest paid on these schemes and savings plans are tax free. Now, the government is planning to reduce the rates on small savings scheme by 50-75 basis points to increase the bank deposits. It was in 2003 that the rate was slashed by 100 basis points to the current eight percent. Government is also planning to set up a committee chaired by the former governor of RBI to study the issue and suggest appropriate steps. Analysts feel that if the banks reduce the deposit rates beyond a certain limit, money can be diverted into the small saving scheme. Hence, banks are refraining from reduction in the deposit rates. According to industry experts, the decrease in deposit rates may not help in the reduction of the lending rates also. Some of the major small saving schemes include National Saving Certificates, Post Office Savings Account, Public Provident Fund, Kisan Vikas Patra, and Senior Citizen Savings Scheme. These saving schemes tend to compete with the bank deposits as they have tax benefits under Section 80 C of the Income Tax Act.

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