When Indian banks are asked about their reluctance to cut interest rates on borrowings even after the RBI had lowered its key policy rate, one of the justifications they had was that the rates on small savings schemes were way too high and unless that too came down and overall costs declined, it would be difficult for them to reduce rates.
With the government now set to lower rates on small savings schemes or products, it is not just banks, but savers too will face challenges. Term deposit or fixed deposit (FD) rates have already plummeted by 150 basis points and on top of it there could be a blow in the form of lower returns on Post Office Savings Schemes, National Savings Certificates, Public Provident Fund and other products.
