New Delhi, Dec 6: Finance Ministry is expected to take a call on interest rate on various small savings like Post Office savings and Public Provident Fund (PPF) by the end of this month.
RBI and banks have been pressing for reduction in small savings rates and bring them in line with market rate for effective transmission of monetary policy.
With small saving deposits commanding a rate of 8.7-9.3 per cent, banks have been reluctant to transmit the entire policy rate reduction by Reserve Bank to borrowers.
Interest rates of various small saving schemes will be reviewed and a final decision may be taken towards the end of the month, sources said.
Smalls saving schemes include Post Office Monthly Income Scheme (MIS), PPF, Post Office fixed Deposit Scheme, Senior Citizen's Savings Scheme, Post Office Savings Account and Sukanya Samriddhi Accounts.
The Finance Ministry in Sept 2015 had announced its intention to review interest rates on small savings after bankers said high rates on such schemes run by the government make it difficult for banks to cut fixed deposit rates.
Last week, Finance Minister Arun Jaitley had said the government will bring down interest rates on small savings "cautiously" so as interest of savers from weaker and vulnerable sections are not hurt.
As a lot of people depend on small schemes, Jaitley had said, "We as an elected government have to look at it in addition to the economic principles with a sense of political pragmatism."
Even RBI Governor Raghuram Rajan had said the rate reduction on small savings like PPF and Post Office deposit is also going to bring down the cost of fund for banks.
"The government is considering small saving rates and tying them more to market interest rates. I think these actions will help (effective monetary policy) transmission," Rajan had said.
The median base lending rates of banks have come down by about 60 basis points as against a 125 basis points of the policy rate reduction since January.