Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: 4.8
Article rating: 5.0
Article rating: 3.0
Article rating: No rating
Article rating: 5.0
Article rating: No rating
Article rating: No rating
Article rating: 4.5
Article rating: No rating
Article rating: No rating
Article rating: 4.2
Article rating: 5.0
Article rating: 4.0
Article rating: No rating
Article rating: No rating


Bank deposit rates unlikely to fall post cut in small savings rates

Author: Debasis Mohapatra/Wednesday, January 3, 2018/Categories: Fixed Deposits

Bank deposit rates unlikely to fall post cut in small savings rates

Mumbai: Interest rate cut in a host of savings instruments including PPF and National Savings Certificates (NSC) are not likely to prompt banks to slash deposit rates. Analysts are also of the opinion that despite slashing of small savings rates, these avenues would continue to attract investors in coming months.

“Reduction in small savings rate was based on demand and supply of money. As interest rates on these financial instruments are linked to yield of government bonds, this downward revision is a result of this movement,” D Ravishankar, founder director of Brickwork Ratings told The Finapolis.

The government recently revised small savings rates downwards for January- March quarter aligning it with bond yields. As per notification, Public Provident Fund (PPF) and NSC will garner a lower annual interest rate of 7.6%, down by 20 basis points from prevailing rates. Another popular postal savings instrument- Kisan Vikas Patra (KVP) will yield 7.3% and mature in 118 months.

The special savings scheme for girl child- Sukanya Samriddhi account will offer 8.1% return from the existing level of 8.3% annually. Similarly, term deposits of 1-5 years will fetch a lower interest rate of 6.6-7.4% for January-March quarter, while the 5-year recurring deposit will generate a return of 6.9% as part of this revision.

However, return on the 5-year Senior Citizens Savings Scheme has been retained at 8.3%. Notably, interest rates on all small savings schemes are being revised on a quarterly basis since April last year.

On the likelihood of further reduction in interest rates in coming quarters, Ravishankar said that chances of further reduction seemed remote at this point of time.

“Post demonetisation, banking system was flushed with liquidity. Higher liquidity and tepid credit growth had led to lowering of deposit and lending rates apart from resulting in easing of yields across various debt securities. However, things have drastically changed in recent months and we see lending activity picking up in next 3-4 months. So, any meaningful revival in credit growth will restrict banks to cut deposit rates in the near future,” he said.

Small savings rates are also not likely to fall further as rising inflation and higher government borrowing are likely to push up bond yields in coming months.

Meanwhile, another credit rating agency also echoed similar stance on the matter. “Despite the recent reduction in small savings rates, we do not expect banks to follow suit and reduce deposit rates, given the recent re-emergence of the liquidity deficit. Moreover, systemic liquidity is expected to remain relatively tight in January-March quarter, based on the anticipated pickup in credit offtake,” Aditi Nayar, Principal Economist of rating agency ICRA said.

It also said that despite the reduction in small savings rates, deposit flow would remain sound during January-March period of next year.

“Despite slashing of rates, inflows into small savings schemes are likely to be healthy in Q4 FY18,” ICRA said.

According to the credit rating agency, interest rates offered by small savings schemes are still higher by 30-95 basis points than bank fixed deposits for maturities higher than three years.

Print Rate this article:

Number of views (601)/Comments (0)

rajyashree guha

Debasis Mohapatra

Other posts by Debasis Mohapatra
Contact author

Leave a comment

Add comment



Ask the Finapolis.

I'm not a robot
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest



The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free