New Delhi: By keeping small savings rates constant for six quarters, the government is paying between 47 and 178 basis points (100 basis points equal to percentage points) more in public provident funds for those parking funds, national savings certificate or fixed deposits in post offices, reserve Bank of India (RBI) said on Monday.

The interest rates on small savings schemes are to be revised every quarter according to an agreed formula that provides the spread over the average yield on government securities for a comparable maturity.

For example, in the case of the hugely popular PPF, which comes with a lock-in of 15 years, a 25-basis point spread is allowed.

After factoring in the average yield of 6.38% on government securities with comparable maturities, the government should have offered 6.63% during the current quarter, but is paying 7.1% instead, as estimated by the RBI (see table ).

Considering that investing up to Rs 1.5 lakh annually in many schemes comes with tax benefits, the returns work out higher.

The status quo – despite softening deposit and lending rates – provides comfort to the middle class and upper-income groups, but puts pressure on banks when it comes to withdrawing deposits, something the RBI has said in the past But it is avoided. They are doing so by pointing out the variation in their monthly bulletin released on Monday.

It only said that between March 2020 and September 2021, deposit rates declined by 180 basis points in short maturities (up to one year), the weighted average domestic fixed deposit rate declined by 135 basis points (March 2020 to August 2021). has declined. .

Indeed, between March 2020 and September 2021, foreign banks have reduced deposit rates by up to 195 basis points, while state-run players are offering 85-157 basis points lower depending on maturity.

During this period, lending rates also declined, as the one-year average marginal cost-based lending rates for scheduled commercial banks decreased by 103 basis points as the cost of funds also fell.

in March, Finance Ministry had announced a sharp cut of 50 to 100 basis points in small savings rates for the April-June quarter – but the decision was reversed within hours amid protests that coincided with assembly elections in states including West Bengal, in which was the biggest contributor. Kitten Since then, the government has chosen to play safe and has not changed rates.