Big hit for small savers ahead of GST, govt slashes saving rates

With few hours to go for the biggest tax reform since Independence to kick in, the government disappointed small savers by slashing interest rates on most small saving schemes such as Kisan Vikas Patra and public provident fund by 10 basis points .

Banking stocks were trading mixed after the reports of the rate cut on small saving schemes. The BSE Bankex was down 0.29 per cent at 26,200 around 11.55 pm (IST).

According to an ETNow report, the government has cut interest rates on Kisan Vikas Patra by 10 basis points to 7.5 per cent from 8.5 per cent earlier. Interest rate on public provident fund has also been slashed by 10 basis points to 7.8 per cent.

Interest rate on five-year National Savings Certificate (NSC) has been reduced by 10 basis points to 7.8 per cent. A basis point is one-hundredth of a percentage point.

The government move may prompt banks to cut deposit rates.

The government had earlier lowered the interest rates on PPF, Kisan Vikas Patra (KVP) and Sukanya Samriddhi scheme by 0.1 per cent for the April-June quarter.

Overall market sentiment looked cautious on Friday morning ahead of the implementation of GST from July 1, Saturday. The BSE Sensex was down 54 points at 30,803 at around the same time, while NSE Nifty was down 19 points at 9,485.

GST ROLLOUT: 360-DEGREE COVERAGE
>> Look, who is going to get hurt by GST?

>> Jhunjhunwala sure of double-digit growth from FY20

>> 5 disruptions you will notice from tomorrow

>> GST rollout today: Why party's over for millions

>> GST set to transform face of logistics industry

“In the scenario of abundant liquidity that has prevailed over the last 8 months, the relative stickiness in small savings rates has not hindered a fall in banks’ deposit rates, unlike in previous phases of tighter liquidity,” said Aditi Nayar, Principal Economist, ICRA Ltd

“Given the continuing and substantial liquidity surplus, liquidity management measures and rate action by the RBI are likely to emerge as the key drivers of deposit rate cuts in the ongoing year. However, the relevance of timely changes in small savings rates for policy transmission would re-emerge as liquidity moves closer to neutrality,” she added.