Rationalization of Interest Rates of Small Savings Scheme

Rationalization of Interest Rates of Small Savings Scheme

The Pension Fund Regulatory and Development Authority (Pension Fund) Regulations, 2015 has been formulated and notified on 19th May, 2015. PFRDA regulations have not specifically stipulated any fixed investment management fee. However, Regulation 20 of the Pension Fund Regulatory and Development Authority (Pension Fund) Regulations, 2015 states that the rate and manner of charging the investment management fee shall be determined in accordance with the procedure as may be laid down by the Authority from time to time and shall be subject to such revision as deemed necessary in subscribers interest and for orderly growth of the pension sector.

Thus, the Pension Fund Regulatory and Development Authority (Pension Fund) Regulations, 2015 provide sufficient flexibility to the PFRDA to lay down the process of selection of pension funds, wherein the determination of investment management fee can be laid down taking into account the interest of subscribers, the orderly growth of pension industry including suitable incentives for the intermediaries (Pension Funds).

In terms of A.P. (DIR Series) Circular No. 17 dated September 29, 2015, issued by the Reserve Bank of India (RBI), any corporate or body corporate, Real Estate Investment Trusts and Infrastructure Investment Trusts are eligible to issue Rupee denominated bonds overseas. However, banks incorporated in India have not been allowed access to these bonds in any manner whatsoever.

In the context of easing the transmission of the lower interest rates in the economy, the Government has taken a comprehensive view on the social goals of certain National Small Savings Schemes. Accordingly, the following would eb effective from 1.4.2016:

i. The 25bps spread that 1 year, 2 year and 3 year term deposits, KVPs and five year Recurring Deposits have over comparable tenure Government securities, shall stand removed.

ii. Further, the interest rates of all small saving schemes would be recalibrated on a quarterly basis, to align the small saving interest rates with the current market rates of the relevant Government securities.

iii. The compounding of interest which is bi-annual in the case of 10 year National Savings Certificate (discontinued since 20.12.2015), 5 year National Savings Certificate and Kisan Vikas Patra, shall be done on an annual basis from 1.4.2016.

This is expected to help the economy move to a lower overall interest rate regime eventually and thereby help all, particularly low income and salaried classes.

This was stated by Shri Jayant Sinha, Minister of State in the Ministry of Finance in written reply to a question in Lok Sabha today.

Source : PIB