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Small Saving Schemes - Interest rate on PPF, Sukanya Samriddhi, other small savings schemes may fall further

The interest rate on small savings schemes like Public Provident Fund (PPF) and other small savings schemes like Senior Citizen Savings Scheme and Sukanya Samriddhi Yojana may be poised for further cuts in subsequent quarters, say experts. The bond markets have reacted positively to the Budget proposals and yields have softened to over one-year lows. Small savings rates are pegged to government bond yields and for the latest July-September quarter, the government had earlier lowered interest rates on PPF and other post office savings schemes by 10 basis points.

"Some part of borrowings within the gross borrowings is estimated to be raised overseas. So the pressure on domestic liquidity is that much less. Bias remains for softer yields this quarter," says RK Gurumurthy, head of treasury at Lakshmi Vilas Bank.

Sanjiv Bhasin, executive vice president of IIFL Securities, expects a paradigm shift in yields over the next few years. “Now be prepared for yields below 5% as government gets aggressive on overseas borrowing. The cost of deposit has to fall as lending rates will come down," he says, adding that small savings rates are also expected to trend lower amid softening bond yields.

The RBI has already cut benchmark rates thrice by cumulative 75 basis points since the start of this year. And now the Budget opens up more room for further rate cuts from the central bank, say analysts.

Source : Live Mint back

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