The Reserve Bank of India panel on small savings schemes headed by deputy governor Rakesh Mohan is understood to have proposed a further cut in interest rates.
The panel is also of the view that all small savings schemes henceforth should be made taxable in order to avoid interest rate anomalies arising out of the tax-free status of certain schemes.
According to sources, there was a proposal to scrap the 6.5 per cent tax-free RBI bonds but the suggestion was not considered favourably by the panel.
The panel was set up to revisit the small savings schemes structure. Earlier, on the recommendations of the Y V Reddy Committee set up in 2001, interest rates of these schemes were restructured.
The panel has already submitted the report to the government of India and the suggestions are under consideration, said sources close to the development.
Sources added that although a rate cut is favoured, no specific target has been set. Incidentally, the internal task force set up by the RBI for this review earlier had recommended about 50 basis points cut across maturities of small savings instruments.
The Rakesh Mohan panel is believed to be in favour of working out a formula whereby interest rate on these schemes should be linked to benchmarks such as return based on inflation rate or bank deposit rates corresponding to different maturities or average secondary market yield on government securities.
Recommendations have also been made for rationalising the number of small savings schemes as most of them result in high cost borrowing for the government.
According to sources, many of the Reddy committee recommendations on restructuring of the schemes in terms of interest rates and taxation, etc are yet to be effected fully.
The small savings schemes include provident fund scheme, Kisan Vikas Patra, postal monthly income schemes, RBI Relief Bonds, National Savings Certificate, etc.
Interest rate structure in some of these instruments reveals that the postal monthly savings scheme and public provident funds offer 8 per cent. National savings Certificate, launched in 1992, has a coupon of 7.50 per cent while taxable RBI Relief Bonds offer 8 per cent interest.
More from rediff