Lok Sabha Question No. 2342 (UNSTARRED), answered on 2016-03-11
Subject: Rationalization of Interest Rates of SSS
Ministry: FINANCE
Asked by: BHOLA SINGH

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA UN STARRED QUESTION NO. 2342 TO BE ANSWERED ON MARCH 11, 2016/PHALGUNA 21, 1937 (SAKA) RATIONALIZATION OF INTEREST RATES OF SSS

## 2342. Shri Bhola Singh

Will the Minister of FINANCE be pleased to state:

- (a) whether  the  Government  is  taking  effective  steps  on  drafting  of  Pension  Fund  Regulatory  and Development Authority (PFRDA) regulations with a view to promoting the growth of the NPS sector with commercially viable incentives;
- (b) if so, the details thereof and if not, the reasons therefor;
- (c) whether the Government is planning to allow the banks to issue offshore INR bonds;
- (d) if so, the details thereof and if not, the reasons therefor;
- (e) whether the Government is planning rationalisation of interest rates of small savings schemes; and
- (f) if so, the details thereof and if not, the reasons therefor?

## ANSWER

The Minister of State in the Ministry of Finance

## (SHRI JAYANT SINHA)

(a) & (b) The Pension Fund Regulatory and Development Authority (Pension Fund) Regulations, 2015, has been formulated and notified on 19 th  May, 2015.

Regulations have not specifically stipulated any fixed investment management fee. However, Regulation 20 of the Pension Fund Regulatory and Development Authority (Pension Fund) Regulations, 2015, states that the rate  and  manner  of  charging  the  investment  management  fee  shall  be  determined  in  accordance  with  the procedure as may be laid down by the Authority from time to time and shall be subject to such revision as deemed necessary in subscribers interest and for orderly growth of the pension sector.

Thus, the Pension Fund Regulatory and Development Authority (Pension Fund) Regulations, 2015, provide sufficient flexibility to the Pension Fund Regulatory and Development Authority to lay down the process of selection of pension funds, wherein the determination of investment management fee can be laid down taking into account the interest of subscribers, the orderly growth of pension industry including suitable incentives for the intermediaries (Pension Funds)

(c) & (d)  In terms of A.P. (DIR Series) Circular No.17 dated September 29, 2015, issued by the Reserve Bank of India, any corporate or body corporate, Real Estate Investment Trusts and Infrastructure Investment Trusts are eligible to issue Rupee denominated bonds overseas. However, banks incorporated in India have not been allowed access to these bonds in any manner whatsoever.

(e) & (f) In the context of easing the transmission of the lower interest rates in the economy, the Government has taken a comprehensive view on the social goals of certain National Small Savings Schemes. Accordingly, the following would be effective from 01.04.2016

- i. The 25bps spread that 1 year, 2 year and 3 year term deposits, KVPs and 5 year Recurring Deposits have over comparable tenure Government securities, shall stand removed.
- ii. Further, the interest rates of all small saving schemes would be recalibrated on a quarterly basis, to align  the  small  saving  interest  rates  with  the  current  market  rates  of  the  relevant  Government securities.
- iii. The compounding of interest which is bi-annual in the case of 10 year National Savings Certificate (discontinued since 20-12-2015), 5 year National Savings Certificate and Kisan Vikas Patra, shall be done on an annual basis from 01.04.2016.

This is expected to help the economy move to a lower overall interest rate regime eventually and thereby help all, particularly low-income and salaried classes.

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