The government has increased the deposit rate on some small savings schemes for the January-March 2023 quarter by 20-110 basis points (bps). This is the second quarterly increase in a row.
Previously, the Centre had increased the interest rate on these small savings schemes by 10-30 basis points for the October-December 2022 quarter. Prior to that though, the Centre had left the rates unchanged for nine straight quarters, although the yields on government securities had fallen by 15-25 bps during the period.
Incidentally, although the interest rate for these small savings schemes are linked to market yields on government securities , they have not always followed the market rate.
The hike in rate corresponds to the constant hike in repo rate by the Reserve Bank of India by 225 basis points since April this year. Since then, banks have increased both lending as well as deposit rates.
At present, the interest rate for the Savings Deposit, Public Provident Fund (PPF ) and Sukanya Samriddhi Yojana remain unchanged at 4 per cent, 7.1 per cent and 7.6 per cent, respectively. The interest rate on five-year recurring deposit also remains constant at 5.8 per cent.
However, the interest rates on term deposits of one-year, two-year, three-year and five-year durations have been increased to 6.6 per cent, 6.8 per cent, 6.9 per cent and 7 per cent from the existing 5.5 per cent, 5.7 per cent, 5.8 per cent and 6.7 per cent, respectively.
The interest rate on Senior Citizen Savings Scheme (SCSS) has been increased from 7.6 per cent to 8 per cent. On the monthly income account, it has been increased from 6.7 per cent to 7.1 per cent.
The interest rates have also been increased on the National Savings Certificate (NSC) from 6.8 per cent to 7 per cent and on the Kisan Vikas Patra (KVP) from 7 per cent to 7.2 per cent.
Incidentally, the RBI had also mentioned in its monetary policy report of September 30, 2022 that given the government bond yields were moving higher, the existing small savings rates were about 40-75 bps lower than the formula implied rates.
Notably, the yield on five-year government bonds rose by around 15 bps in September-November 2022, which is the reference period for small savings interest rates for the January-March 2023 quarter. During the same period, the 10-year bond yields increased by 10 bps.
