"When lending rates go down, the borrowing rates will obviously come down. These are all inter-connected," Jaitley said in the Rajya Sabha during Zero Hour in reply to a question on the issue by Derek O'Brien of the Trinamool Congress. "Please remember, you are talking about a time when inflation was 10-11 per cent. The lending rates were high and sluggishness was setting in because of that," he said referring to an earlier period of higher interest on savings bank deposits.
State-run State Bank of India (SBI) on Monday announced a 50 basis points (bps) cut in the interest rates for savings accounts having deposits below Rs 1 crore. The revised interest rate for savings accounts having up to Rs 1 crore deposit now stands at 3.5 per cent while those having above Rs 1 crore balance in their savings accounts will continue to enjoy the 4 per cent interest rate.
"This is precisely why to keep the fixed deposits at the rate at which it was, because those are not rates which have been touched, those are the rates which affect retired and pensioners the most," the Finance Minister said. "And this government to take care of those senior citizens, for first time has brought in a scheme of 8 per cent guaranteed which will not change as far as senior citizens pension is concerned."
"The cumulative effect of that interest is 8.3 per cent. I have launched this scheme and the PM had announced it on December 31. The LIC is administering the scheme," he added.
Earlier on Thursday, replying to the debate on the Banking Regulation (Amendment) Bill, 2017, Jaitley said this pension scheme for senior citizens run by the Life Insurance Corporation will dissuade people from putting their savings in chit funds.
Government Upset With The Rates
The official statement from the finance ministry welcomed RBI's rate cut by 25 basis points (100bps = 1 percentage point) on Wednesday, but overall there was a sense of disappointment within the government over the central bank's move to opt for a "small cut".
Sections within the government said with inflation at historic lows, there was enough room for a "drastic cut" and it could have been as much as 100 basis points. "It seems that RBI feels that pushing growth is the duty of the government alone and that RBI should only be concerned with fighting inflation," said a source, giving the reasons why the central bank should have gone in for a substantial reduction.