New Delhi: Stock markets are down and crypto has crashed, but post office plans may make investors smile. government bond yield has risen sharply in the last one year, it is expected that interest rates small savings schemes The hike will be linked to these bonds.

The formula set by the Gopinath Committee in 2011 states that small savings rates should be 25-100 basis points higher than the average yield of government securities of the same duration. The benchmark 10-year bond yield has risen 140 basis points to 7.46% from 6.04% in the past 12 months. It averaged 7.31% in the April-June quarter. According to the source, the PPF rate should be increased to 7.81%, while the Sukanya Samriddhi Yojana and Senior Citizens Savings Scheme should be offered over 8% (
see table,

If small savings rates are hiked, investors in RBI’s floating rate bonds will also benefit. The interest rate of these bonds is linked to NSC. They offer 35 bps more than NSC. The prevailing rate of NSC is 6.8%, hence RBI is offering floating rate bonds of 7.15%. If the NSC rate is increased to 7.15%, the interest rate on these bonds will be 7.5%, which is currently higher than that of the bank’s fixed deposits.

However, the formula for T has not always been followed in the past. In the January-March 2021 quarter, the average 10-year bond yield was less than 6%, which means the PPF rate should have been around 6.25%, while the senior citizens’ savings scheme should not have given more than 6.75%.

Accordingly, interest rates were reduced in March 2021. PPF rate cut to 6.4%, Senior Citizen Savings Scheme to 6.5% and Sukanya Scheme to 6.7%. This caused a huge uproar, forcing the government to roll back the cuts. Small savings rates have remained untouched since then.

Now that government bond yields have risen significantly, the government may hike small savings rates. Whether this hike will follow the Gopinath Committee formula or not, remains to be seen.