While loans are set to become cheaper for customers with the Reserve Bank of India (RBI) opting to cut the repo rate by 25 basis points, deposit rates including those of small savings may be cut going forward.
While banks are likely to cut their deposit rates in line with the policy rate, sources indicated that returns on small saving instruments also come down in coming months.
“This is perhaps, the most attractive rate of return for small saving schemes at present. With borrowing rates going down, returns on these products may also be revised downwards,” noted an official source.
Small savings rates are reset every quarter by the finance ministry based on the recommendations of the Shyamala Gopinath committee that had proposed linking the rates on these instruments to the prevailing yields of government bonds with similar maturities. The next review of the rates on small savings will be undertaken by the finance ministry towards the end of March for the April to June 2025 quarter.
In the last review, which was announced on December 31, the finance ministry had maintained the status quo on returns on these schemes for the January to March 2025 quarter. This was the fourth successive quarter when these rates remained unchanged.
Small savings instruments comprise of vastly popular schemes including the Public Provident Fund, National Savings Certificates and Sukanya Samriddhi Scheme. At present, the PPF offers a return of 8.1% and the SSA has a rate of 8.2%. The interest rate on the Kisan Vikas Patra is 7.5% and on post office savings deposit scheme is at 4%.
Sources however, noted that small savings are likely to continue seeing robust contributions despite more taxpayers moving to the new income tax regime. “Interest rates on these schemes, especially the PPF remains very attractive. These savings schemes are not considered only a tax saving tool,” the source noted.
Nearly 76% of individual income taxpayers have moved to the new income tax regime and it is expected that most taxpayers will move to the new regime following the proposals in the Union Budget 2025-26 that includes a significant rejig of the slabs and tax relief to income up to Rs 12 lakh per annum.
For FY26, the Centre has budgeted Rs 3.43 lakh crore as net small savings compared to Rs 4.11 lakh crore in the revised estimate for FY25.
There is also no official word on whether the Mahila Samman Savings Certificate scheme, which is set to come to an end on March 31, 2025, will be continued. The Budget has not made any such announcement. The scheme, announced in the Union Budget 2023–2024, is a one-time small savings scheme with a return of 7.5%. It is available for a two-year period for a maximum deposit facility of up to Rs 2 lakh.