Why is the government cutting down interest rate for small savings instruments?
@Sohini The finance ministry has decided to cut interest rates for small saving instruments to bring uniformity in interest rates between banks, government securities and small saving instruments.
The improving economic conditions have lead to a constant decline in the RBI repo rate cuts. Banks are now passing on the lower interest rates to customers. With banks charging low interest rates they have no choice but to bring down their fixed deposit rates as well.
If small security instruments continue to hold interest rate advantages, it will lead to a situation where banks will not attract any new deposits. So it is all a level playing field with rate cuts from small saving instruments.