PPF Interest Rate Should Be 6.63% Instead of 7.10%: RBI

The Reserve Bank of India in its Monetary Policy Report of October 2021, has claimed that the government has kept interest rates on different small savings schemes steady since Q2:2020-21. The prevailing rates are 47-178 basis points higher than the Q3:2021-22 formula-based rates. This indicates that the government is offering 47-178 basis points more than its formula-based rates for PPF, NSC, and other government-sponsored savings schemes. According to RBI's formula-based analysis, the applicable PPF interest rate for the current quarter, Q3:2021-22, should be 6.63 percent, but the subscribers are getting 7.10% according to the Government's announced rate of interest in Q3:2021-22.

Similarly, the interest rates of Post Office Term Deposits maturing in 1 year, 2 years, 3 years and 5 years should be 3.72%, 4.23%, 4.74%, and 6.01% instead of 5.50% for 1 to 3 years and 6.70% for 5 years of maturity period. Similarly, for the NSC VIII issue, the government should offer 6.14 percent interest rather than the current rate of 6.8 percent, a difference of 66 basis points. In the third quarter of FY 2021-22, the prevailing interest rates for Recurring Deposit Account, Monthly Income Scheme, Kisan Vikas Patra, Senior Citizens Saving Scheme, and Sukanya Samriddhi Account Scheme should be 4.74 percent, 5.98 percent, 6.38 percent, 6.76 percent, and 7.13 percent, respectively, instead of what the government is paying now.

In its report issued on 8th October 2021 RBI has said that "With the moderation in interest rates on bank deposits and unchanged interest rates on small savings, the latter have become attractive to depositors. The growth in accretions under small savings has consistently been above that of bank deposits since 2018 and the gap has widened, with implications for monetary transmission as and when credit demand picks up."

RBI Monetary Policy Report On Interest Rates on Small Savings Instruments - Q3:2021-22

Interest Rates on Small Savings Instruments - Q3:2021-22
Small Savings Scheme	Maturity (years)	Spread (% point)	Average G-sec Yield (%) of Corresponding Maturity (June 2021 - August 2021)	Formula based Rate of Interest (%) (applicable for Q3:2021-22)	Government Announced Rate of Interest (%) in Q3:2021-22	Difference (basis points)
1	2	3	4	(5) = (3) + (4)	6	(7) = (6) - (5)
Savings Deposit	-	-	-	-	4	-
Public Provident Fund	15	0.25	6.38	6.63	7.1	47
Term Deposits
1 Year	1	0	3.72	3.72	5.5	178
2 Year	2	0	4.23	4.23	5.5	127
3 Year	3	0	4.74	4.74	5.5	76
5 Year	5	0.25	5.76	6.01	6.7	69
Recurring Deposit Account	5	0	4.74	4.74	5.8	106
Monthly Income Scheme	5	0.25	5.73	5.98	6.6	62
Kisan Vikas Patra	124 Months	0	6.38	6.38	6.9	52
NSC VIII issue	5	0.25	5.89	6.14	6.8	66
Senior Citizens Saving Scheme	5	1	5.76	6.76	7.4	64
Sukanya Samriddhi Account Scheme	21	0.75	6.38	7.13	7.6	47
Sources: Government of India; FBIL; and RBI staff estimates.

Post Office Savings Schemes Interest Rates

For the sixth quarter (October-December), the Union Ministry left the interest rates on Post Office Savings Schemes unaltered. The following are the current interest rates on various small savings schemes.

Small Savings Schemes	Interest Rates For Q3:2021-22
Post Office Savings Account(SB)	4.0% per annum
5-Year Post Office Recurring Deposit Account (RD)	5.8​ % per annum
Post Office Time Deposit Account (TD)	5.5% for 1 to 3 year A/c, and 6.7​ % for 5 year A/c
Post Office Monthly Income Scheme Account (MIS)	6​.6​ % per annum
Senior Citizen Savings Scheme (SCSS)	7.4 ​% per annum
15 year Public Provident Fund Account (PPF)	7.1 % per annum
Sukanya Samriddhi Accounts	7.6​​% Per Annum
National Savings Certificates (NSC)	6.8 % compounded annually but payable at maturity
Kisan Vikas Patra (KVP)	6.9 % compounded annually
Source: indiapost.gov.in