Government may link PPF returns to bank deposits, RBI’s rates

The government may link interest rate on public provident funds ( PPF) and post office deposits to bank deposit rates or RBI's repo rate and allow for quarterly or half-yearly reset in returns on small savings schemes.

The move is part of the review launched by the finance ministry, which currently uses the returns on government securities to annually fix the rates for small savings schemes, a critical element of household savings in the country. The government is looking to lower interest rates on a large number of small savings schemes, while building in safeguards for senior citizens and the girl child, following a reduction in key policy rates by RBI.

"Real interest rates are probably higher today. So, that needs a correction. In a high inflation regime, you had a certain interest structure for banks as well as the small savings schemes. But when inflation is down, interest rates naturally need a correction," said economic affairs secretary Shaktikanta Das, adding that a final decision is yet to be taken.

He said the finance ministry is internally looking at various options and it wanted the interest transmission to take place in the entire economy. "Whether to link it to g-secs or something else will have to be examined. There have been suggestions that it should be linked to the repo rate, it should be linked to the bank deposit rates," Das told TOI in his first interview after taking over as economic affairs secretary.

Source:-The Economic Times