NEW DELHI: The government is set to reduce interest rates on small savings products such as public provident fund and National Savings Certificate .
The new formula 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 (100 basis points equal a percentage point). There are indications that senior citizens and women will be protected with some special category schemes.
Banks are expected to follow the small savings rate cut with lower fixed deposit rates.
The Reserve Bank of India 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.
The move may trigger a fall in returns on savings. It is seen as a reform move by the government, which recently announced a plan to end subsidies to the high-income segment.
