Small savings interest
rates hiked- Ministry of Finance orders Dt. 11.11.2011
No. 6-1/2011-NS.II (Pt.)
Ministry of Finance
Department of Economic
Affairs
(Budget Division)
------------------------------------------------------------------------------------------------------------
New Delhi, the 11th November, 2011.
OFFICE MEMORANDUM
Sub: Decisions on the recommendations of the
Committee for
Comprehensive Review of
National Small Savings Fund (NSSF).
The Thirteenth Finance Commission in its Report had, inter
alia, recommended that all aspects of the design and administration of the NSSF be
examined with the aim of bringing transparency, market linked rates and other much needed
reforms to the scheme. As a follow up of this recommendation, the Government
had constituted a Committee on 8th
July, 2010, headed by Smt.
Shyamala Gopinath, the then Deputy Governor, Reserve Bank of India for
comprehensive review of NSSF. The terms of reference of the Committee included
review of the existing parameters for the small saving schemes in operation and
recommend mechanisms to make them more flexible and market linked; review of
the existing terms of the loans extended from the NSSF to the Centre and States
and recommend on the changes required in the arrangement of lending the net
collection of small savings to Centre and States; review of other possible
investment opportunities for the net collections from small savings and the
repayment proceeds of NSSF loans extended to States and Centre; review of the
administrative arrangement including the cost of operation; and review of the
incentives offered on the small savings investments by the States.
2. The Committee submitted its report to the Government on
7th June, 2011.
Comments/views of Department of Posts, Department of
Revenue, Department of Financial
Services, Department of Expenditure and all State/Union
Territory Governments were sought on
the recommendations made by the Committee.
3. The recommendations of the Committee have been considered
in detail, taking into account the views/comments received from other
Departments, States/UTs and representations received from various agents’
associations and others. After detailed examination the following
decisions have been taken:-
Rationalisation of Schemes :
i.
The
maturity period for Monthly Income Scheme (MIS) and National Savings
Certificate (NSC) will be reduced from 6 years to 5 years.
ii.
A
new NSC instrument, with maturity period of 10 years, would be introduced.
iii.
Kisan Vikas Patras (KVPs) will be
discontinued.
iv.
The
annual ceiling on investment under Public Provident Fund (PPF) Scheme will be
increased from Rs. 70,000 to Rs..1 lakh.
v.
Interest
on loans obtained from PPF will be increased to 2% p.a.from existing 1% p.a.
vi.
Liquidity
of Post Office Time Deposit (POTD) – 1, 2, 3 & 5 years – will be improved
by allowing premature withdrawal at a rate of interest 1% less than the time
deposits of comparable maturity. For pre-mature withdrawals between 6-12 months
of investment, Post Office Savings Account (POSA) rate of interest will be
paid.
Interest Rates on Small Savings Instruments :
- The
rate of interest paid under Post Office Savings Account will be increased from
3.5% to 4% p.a.
- The rate of interest on small savings schemes will be aligned with G-Sec rates of similar maturity, with a spread of 25 basis points (bps) with two exceptions. The spread on 10 year NSC (new instrument) will be 50 bps and on Senior Citizens Savings Scheme 100 bps. The interest rates for every financial year will be notified before 1st April of that year.
- Assuming the date of implementation of the recommendations of the Committee as 1st December, 2011 the rate of interest on various small savings schemes for current financial year on the basis of the interest compounding/payment built in the schemes, will be as given below :-
Instrument
|
Current Rate (%)
|
Proposed Rate (%)
|
Savings Deposit
|
3.50
|
4.0
|
1 year Time Deposit
|
6.25
|
7.7
|
2 year Time Deposit
|
6.50
|
7.8
|
3 year Time Deposit
|
7.25
|
8.0
|
4 year Time Deposit
|
7.50
|
8.3
|
5 year Time Deposit
|
7.50
|
8.3
|
5 year Recurring Deposit
|
7.50
|
8.0
|
5-year SCSS
|
9.00
|
9.0
|
5 year MIS
|
8.00 (6 year MIS)
|
8.2
|
5 year NSC
|
8.00 (6 year NSC)
|
8.4
|
10 year NSC
|
New Instrument
|
8.7
|
PPF
|
8.00
|
8.6
|
4. Payment of 5% bonus on maturity of MIS will be
discontinued.
- Payment
of commission on PPF schemes (1%) and Senior Citizens Savings Scheme (0.5%)
will be discontinued.
- Agency
commission under all other schemes (except MPKBY agents) will be reduced from
existing 1% to 0.5%.
- Commission
at existing rate of 4% will continue for Mahila Pradhan Kshetriya Bachat Yojana
(MPKBY) agents.
- Incentives, if any, paid by the State/UT Governments
will be reduced from the commission paid by the Central Government.
- The
minimum share of States in net small savings collections in a year, for
investment in State Governments Securities, will be reduced from 80% to 50%.
The remaining amount will be invested in Central Government securities or lent
to other willing States or in securities issued by infrastructure
companies/agencies, wholly owned by Central Government.
- Yearly
repayment of NSSF loans made by Centre and States, will be reinvested in
Central and State Government securities in the ratio of 50:50.
- The
period of repayment of NSSF loans by Centre and States will be reduced to 10
years, with no moratorium.
- For
the current financial year the prevailing interest rate of 9.5% will continue.
From 1st April, 2012 revised interest
rate will be notified.
- Half
yearly payment of interest by the Centre and the States will be introduced.
- Interest
rate on existing investments from NSSF in Central Government securities till
2006-07 will be re-set at 9% and on those from 2007-08 till 2010-11 will be
re-set at 9.5%.
Operational Issues of NSSF
- A
Monitoring Group drawn from Ministry of Finance, Reserve Bank of India,
Department of Posts, State Bank of India, other select banks and select State
Governments will be set up to resolve various operational issues like reducing
the time lag between collection and investment, etc.
- Necessary
notifications, including those requiring amendments to rules of various small
saving schemes and National Small Savings Fund (Custody & Investment)
Rules, 2001 will be notified separately. The above decisions will take effect
from the dates to be specified in the notifications.
This has the approval of Finance Minister.
Addl.
Secretary to the Govt. of India
.JPG)
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