Similarly, the interest rates on PPF accounts were also increased to 8.6 per cent from the existing 8 per cent.
The government also reduced the maturity period for Monthly Income Scheme (MIS) and National Saving Certificate (NSC) to five years from the current six-year-period. The five-year MIS will now yield 8.2 per cent interest, a finance ministry release said.
Expanding the Public Provident Fund, the government raised the annual ceiling on investment under the scheme to Rs 1 lakh from the existing Rs 70,000. The interest on loans obtained from PPF will also be increased to 2 per cent per annum from existing 1 per cent, the notification said.
In another relief to those seeking to withdraw money before the maturity period, it allowed pre-mature withdrawal from post office time deposits of one to five years. Other highlights of the decision were, a hike to the tune of 8 per cent on 5-year recurring deposits and a 7.7 per cent interest on one-year time deposit with the post office.
It also sought to align the rate of interest on small savings schemes with G-Sec rates of similar maturity, with a spread of 25 basis points.
The rate of interest on 10-year-National Savings Certificate, which will be introduced subsequently, will be 50 bps, whereas the interest on Senior Citizens Savings Scheme will be 100 bps, a finance ministry release said. The new interest rates will be applicable from the date of notification which will be announced soon, it said.
The step has been taken following the recommendations of a committee set by the government under former Reserve Bank of India deputy governor Shyamala Gopinath, which sought reforms in the National Small Savings Fund (NSSF) by linking their interest rate with that of the market.
Kisan Vikas dropped
The Kisan Vikas Patras, which doubled investors’ money in eight years and seven months were, however, discontinued.
The rates on small savings have been raised days after the RBI freed the interest rates on savings accounts in the banks, following which some of the lenders increased returns to the tune of 6 per cent on saving bank deposits making it more lucerative.
The finance ministry also said the payment of commission on PPF schemes and senior citizens savings scheme will be discontinued and the agency commission under all other schemes (except Mahila Pradhan Kshetriya Bachat Yojana agents will be halved to 0.5 per cent.