New Delhi, Mar 31 (PTI) The government has lowered interest rates on small saving schemes like PPF, Kisan Vikas Patra and Sukanya Samriddhi scheme by 0.1 per cent for the April-June quarter, a move that would prompt banks to cut their deposit rates.

For April-June, these have been lowered by 0.1 per cent across the board compared to January-March. However, interest on savings deposits has been retained at 4 per cent annually.

Since April last year, interest rates of all small saving schemes have been recalibrated on a quarterly basis.

A finance ministry notification said investments in the public provident fund (PPF) scheme will fetch lower annual rate of 7.9 per cent, the same as 5-year National Savings Certificate. The existing rate for these two schemes is 8 per cent.

Kisan Vikas Patra (KVP) investments will yield 7.6 per cent and mature in 112 months.

The one for girl child savings, Sukanya Samriddhi Account Scheme, will offer 8.4 per cent annually, from 8.5 per cent at present, while it will be the same at 8.4 per cent for the 5-year Senior Citizens Savings Scheme. The interest rate on the senior citizens scheme is paid quarterly.

Term deposits of 1-5 years will fetch a lower 6.9-7.7 per cent that will be paid quarterly while the 5-year recurring deposit has been pegged lower at 7.2 per cent.

"On the basis of the decision of the government, interest rates for small savings schemes are to be notified on a quarterly basis," the ministry said while notifying the rates for the fourth quarter of 2016-17 starting from April 1, 2017.

While announcing the quarterly setting of interest rates, the ministry had said the rates of small saving schemes would be linked to government bond yields.

The move is expected to prompt banks to lower the deposit rate in line with the small savings rate as offered by the government.

Small savings interest rates cut leads to lower bank deposit rates as government links scheme yields to bond yields. Government lowered small saving scheme interest rates by 0.1 percentage point for the April-June quarter while keeping savings deposit rate at four percent; PPF and 5 year NSC at 7.9 percent, KVP at 7.6 percent (112 month maturity), Sukanya Samriddhi and 5 year Senior Citizens scheme at 8.4 percent, term deposits (1-5 years) at 6.9-7.7 percent, and the 5 year recurring deposit at 7.2 percent. Rates are set quarterly and linked to government bond yields, with the change expected to induce banks to cut deposit rates.