Decline in interests on bank fixed deposits and other small savings schemes has also been observed in the recent past. Photograph: (AFP)
The move will impact 40 million employees in India
The Employees Provident Fund Organisation (EPFO) of India at a meeting today decided to lower the interest rate on provident fund deposits, PTI reported.
The new interest rate for financial year 2016-17 will be 8.65 per cent as compared to last year's 8.8 per cent that PF subscribers were getting.
Four crore employees who contribute part of their salaries to the fund will be impacted by this decision.
With demonetisation, the banks have received an influx of cash, giving them the window to reduce interest rate across different financial savings instruments, including bank fixed deposits and small savings schemes.
Beginning April 2016, interest rates will be revised every quarter henceforth versus the annual revision earlier.
If the EPFO had retained 8.8 per cent rate of interest for the current fiscal, it would have faced a deficit of Rs 3.83 billion.
Earlier this year, the government had sharply lowered the interest rate on small savings schemes like Public Provident Fund (PPF), Kisan Vikas Patra and Sukanya Samriddhi Account. According to the new norms on small savings schemes effective from April 2016, the government will revise the interest rate on small savings scheme every quarter instead of the earlier annual revision.
The popular Public Provident Fund will fetch an interest rate of 8 per cent for the December quarter. The rate of interest for 5-Year Senior Citizens Savings Scheme and 5-Year National Savings Certificate had been reduced to 8.5 per cent and 8 per cent, respectively.