Kolkata, April 28, 2025: Are interest rates on small savings schemes set to face a cut? A recent Reserve Bank of India (RBI) report suggests so, raising concerns among investors. The RBI notes that current interest rates on schemes like Public Provident Fund (PPF), Kisan Vikas Patra, Monthly Income Scheme, and Recurring Deposits are “excessively high.” If these rates persist, banks may see a decline in deposits, straining their cash reserves. Experts warn that if the Union Finance Ministry heeds the RBI’s concerns, a reduction in small savings interest rates could be imminent, impacting millions who rely on these schemes.

According to the RBI report, deposit growth in commercial banks was 10.4 percent in April 2025, down from 13.3 percent the previous year. This slowdown is attributed to reduced savings in banks, as people prefer small savings schemes offering higher returns. The RBI points out that these schemes’ interest rates, tied to government bond yields, are currently 0.16 to 0.66 percent above normal. With the RBI recently lowering the repo rate twice, banks have an opportunity to reduce deposit interest rates. However, high returns on small savings could divert investments from banks, increasing pressure on their liquidity.

While the Finance Ministry, not the RBI, sets small savings interest rates, the central bank’s observations carry significant weight in shaping economic policy. For over a year, these schemes’ rates have remained unchanged. As per the April 1 announcement, current rates will hold until June 30. However, when new rates are announced for July 1, the RBI’s concerns may prompt a reduction. “A cut in interest rates would hit senior citizens and Monthly Income Scheme investors hard,” said an economic analyst. If implemented, this could make bank fixed deposits more appealing, potentially reshaping savings preferences. The future of these popular schemes hangs in the balance as the Finance Ministry deliberates its next move.