“Leaving aside the regulators, there are a few things that a government can do to improve lending activity in order to boost growth and ensure the transmission of rate cuts.
Small savings is one of them,” said a senior government official. The person confirmed that the possibility of a rate cut for small savings scheme was being discussed.
“There are steps being taken to clean up the financial sector, but a short-term impact of that is some avenues of credit are blocked,” said a second official.
“There is also coronavirus and the impact it has had on the global economy. We want to improve credit activity at this time and hope that the RBI will also emulate action by central banks
elsewhere,” said the official.
Officials admit that the latest episode in the financial sector
— that of YES Bank
— may have eroded trust in the financial sector
and that lowering the cost of capital was one of the ways to get that trust back. They hope that a cut in small savings interest rates will prompt banks to cut their rates as well. Central banks
of various nations, including the United States Federal Reserve and the Bank Of England, have announced surprise interest rate cuts
to deal with the economic impact of coronavirus amid concerns that the slowdown from the outbreak could tip countries into recession. The next meeting of the MPC is scheduled during March 31-April 3. The notification of the small savings interest rates for April-June, which is reviewed quarterly, is expected on March 31 as well.