The Government may prefer to leverage small savings schemes by keeping interest rates on them unchanged for a couple of more quarters to ensure inflows continue unhindered, according to fixed income market experts.

The need to overcome revenue shortfall due to GST rate cuts and at the same time avoiding additional borrowing via Government Securities (G-Secs) could prompt continuing status quo on small savings rates.

The interest rates on small savings schemes, comprising savings deposit, time deposit, senior citizen savings scheme, monthly income account scheme, public provident fund scheme, among others, for the third quarter (Q3FY26) are scheduled to be announced this month end.

The interest rates on the small savings schemes have been static for the last six quarters. This comes despite the RBI’s rate setting panel cutting the policy repo rate by a cumulative 100 basis points from 6.50 per cent to 5.50 per cent since February 2025 and banks transmitting some of this to deposits.

The outstanding amount under the various small savings schemes rose about 10 per cent year-on-year to ₹20,05,585 crore as at February-end 2025, per RBI’s latest monthly bulletin.

In Q1FY26 (April-June), the interest rates on most of the small savings instruments were above the formula-based rates in the range 16-66 basis points, per RBI’s April monetary policy report.

Track record: Govt sticks to borrowing target

Ajay Manglunia, Executive Director, Capri Global Capital Ltd, observed that fear of the Government overshooting the borrowing target is always there among investors.

“This time the fear is due to GST rate cuts and US tariffs on Indian imports. This could lead to revenue shortfall, raising the possibility of the Government borrowing more that what has been budgeted.

“But if you look at the Government’s borrowing track record over the last 10 years or so, they are sticking to the target. I doubt they will look to borrow more. Rather than borrowing via G-Secs, they will bank on small savings schemes….They will not cut the small savings rates,” Manglunia said.

Venkatakrishnan Srinivasan, Managing Partner, Rockfort Fincap LLP, noted that when banks are struggling to lure depositors with sub-7 per cent rates, the government is quietly winning the household savings race.

“Small savings schemes are offering anywhere between 6.7 per cent and 8.2 per cent, comfortably beating most bank Fixed Deposits, and even many state and central government bonds.

“…By holding these rates high, the Government is doing more than just pleasing small savers and retirees. It’s shrewdly channeling money into small savings, plugging fiscal gaps without leaning heavily on fresh bond borrowings,” he said.

Extra borrowing: Fears overplayed

Venkatakrishnan opined that the GST reforms have stoked fears of extra government borrowing, but those fears may have been overplayed.

“Between a bumper RBI dividend, possible PSU bank divestments, and a flood of household money into savings schemes, the Centre seems to have its cushion,

“For now, small savings are more than just schemes—they’re the government’s secret superpower in managing both savers’ trust and fiscal arithmetic,” he said.

Manglunia emphasised that the Government and RBI may not vitiate the market sentiment by announcing extra G-Sec borrowing in the second half (2HFY26) issuance calendar, which will be released this month end as it will be difficult for the market to digest the same.

“…In the last quarter, if tax collections are lower then only will the Government announce extra borrowing. They would rather borrow short-term via Treasury Bills,” he said.

The centre’s gross market borrowings and net borrowings for FY26 (BE) are placed at ₹14.82 lakh crore (₹14,00,697 crore) and ₹11.54 lakh crore (₹10,39,275 crore), respectively.

Published on September 14, 2025