Inflows in small savings schemes expected to be healthy
While the present interest rate offered by the 1-year time deposit small savings scheme (6.6%) is similar to the 1-year median deposit rate offered by banks, the spread nevertheless remains substantial at 30-95 bps for maturities higher than three years. Moreover, in an attempt to encourage savings, the government has allowed all public sector banks and a few private sector banks to accept deposits under various small savings schemes like National Savings Certificate, recurring deposits and monthly income plan. Until now, most of the small savings schemes were sold through post offices. As a result, ICRA continues to expect inflows into small savings schemes to be healthy in Q4 FY2018. This would help to surpass the budgeted target from this avenue set by the central government (`1 trillion in FY2018), albeit at a higher rate (8.4%) than its dated market borrowings. Healthy small savings collections should curtail the extent of further expansion in the issuance of G-sec in Q4 FY2018. This may help to contain the uptick in G-sec yields, despite continuing uncertainty around the extent to which the government’s fiscal deficit for FY2018 would exceed the budgeted target of 3.2% of GDP.