In­flows in small sav­ings schemes ex­pected to be healthy

Banking Frontiers - - Research Notes - SSS - Me­hul@bank­ingfron­

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.

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