Current yields on India’s small savings schemes have slipped below the prescribed formula for determining their rates by 44 to 77 basis points (bps), despite a 10 to 30 bps increase made by the government on returns of certain plans for the period October to- December Quarter. (100 basis points equal one percentage point).
Making the first increase in small savings rates since January 2019, the government raised the yields of five of the 12 such schemes in operation this quarter. This was the first change to small savings since the April to June quarter of 2020, when they were reduced across all plans.
The returns for these schemes are linked to government securities market returns (G-secs) with a lag and are set on a quarterly basis at a spread of 0 to 100 basis points (bps) from the G-secs returns d comparable maturities.
“With G-sec yields on the rise, prevailing interest rates on various schemes are 44-77 basis points lower than the rates implied by the formula for Q3:2022-23,” noted the RBI Bulletin. published on Monday.
The formula-based yield of the popular Public Provident Fund (PPF) for which the government did not raise rates this quarter, according to the RBI, was 7.72% instead of the 7.1% currently generated by these savings. Yields are lower than the formula rate by 55 to 77 basis points, for no less than nine of the twelve plans.
The gap between the current yield and formula-based rates is greatest for three-year term deposits, which in fact saw the highest payout rate during the quarter (by 30 basis points basis at 5.8%), and recurring deposit accounts, whose yields were unchanged for this quarter – at 77 basis points.
The Seniors’ Savings Scheme, whose returns fell from 7.4% to 7.6% for this quarter, should have been paid out at 8.04% under the formula, according to the RBI’s calculations. Similarly, the formula-based yield of the Sukanya Samriddhi Account Scheme stands at 8.22%, but its yields remained unchanged at 7.6%.
There is also a wide spread of nearly 70 basis points between the 6.8% rate paid on National Savings Certificates and the formula-based rate of 7.48% for the October-December quarter. Yields on Kisan Vikas Patra, at 7%, are 47 basis points below formula rates, the RBI estimated.