A reduction in government-administered small savings rate will signal a benign interest rate regime and facilitate reduction in banks’ lending and deposit rates, according to K C Chakrabarty, who On Monday took over as the Reserve Bank of India (RBI) deputy governor.

In his first interaction with the media after taking charge, the former chairman and managing director of Punjab National Bank said, “When the government is giving a certain interest rate on small savings, it is not logically correct for banks to provide a lower rate of interest. When we are saying that interest rates are coming down, that means the small savings rate should also come down.”

However, he said the small savings rate was not the only factor influencing lending and deposit rates. “A slight increase or decrease in the small savings rate will not greatly affect bank deposits, but this is a directional issue,” said Chakrabarty.

Small savings schemes such as public provident fund and post office deposits earn around 8 per cent a year. Bankers cite this as an impediment to lowering deposit rates and, consequently, lending rates.

At the RBI, Chakrabarty will oversee eight departments, including customer service, administration and personnel management, information technology, payment and settlement systems, human resources development, the Rajbhasha department, rural planning and credit and urban banks. He will also serve as the alternate appellate authority under the Right to Information Act, 2005.