Govt makes no changes to small savings schemes interest rates for April-June

The finance ministry has left interest rates on small savings schemes unchanged for April-June 2022.

The interest rates on the various instruments range from 4.0 percent to 7.6 percent.

This is the eighth consecutive quarter for which no changes have been made to the interest rates on small savings instruments even though there have been changes in the government bond yields these interest rates are linked with.

These interest rates, while set by the government, are linked to market yields on government securities at a spread of 0-100 basis points over the yield of these securities of comparable maturities.

In December 2021-February 2022, which is the reference period for small savings interest rates for April-June 2022, the yield on five-year government bonds rose sharply, with that on the 5.74%, 2026 bond jumping 36 basis points over the period to 6.05 percent from 5.69 percent.

The 10-year bond yield rose by an even greater amount of 44 basis points over the same period.

Earlier this month, Reserve Bank of India (RBI) staff noted in their 'State of the Economy' article that interest rates on small savings instruments had to be cut by 9-118 basis points for April-June 2022 to bring them in line with the formula-dictated rates.

The central bank has periodically called on the government to stick to the formula-based approach to setting small savings interest rates. In its Monetary Policy Report in October, the RBI had warned that the interest differential on small savings schemes and bank deposits had resulted in growth in accretions under the former consistently exceeding that of bank deposits since 2018. This, the RBI said, would have implications for monetary transmission whenever demand for credit picked up.

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