The Reserve Bank of India task force on small savings scheme is understood to have recommended an almost 50 basis point cut across maturities of all small savings instruments.

It was learnt that an internal task force was set up to review the small savings scheme after the Y V Reddy committee set up in 2001 had strongly recommended for slashing administered rates on small savings.

According to sources close to the development, the group has observed that even after the Reddy committee recommendations, the restructuring of the schemes in terms of interest rates, taxation etc are yet to be effected fully.

The recommendations have been submitted to the RBI governor for further discussions with the government on this matter.

The group has also advised that tax shields accompanying such instruments also needed to be relooked as the non-taxable instruments yield-wise fetch much more yield than the coupon rates.

A case in point is the 6.5 per cent non-taxable RBI relief bond. Including the tax shield the return on the instrument hovers around 11 per cent.

The small savings schemes include the Public Provident Fund scheme, Kisan Vikas Patra, postal monthly income schemes, RBI Relief Bonds, National Savings Certificate etc.

The interest rate structure of some of these instruments reveals that the postal monthly savings scheme and public provident fund offer 8 per cent returns.

National Savings Certificate, launched in 1992, has a coupon of 7.50 per cent and RBI taxable Relief Bonds offer 8 per cent.

The Reddy committee recommendations primarily focussed on rationalisation of administered interest rates and reduction of number of such schemes so that these become modest source of financing government deficit.

The committee had recommended benchmarking of such instruments to real return based on inflation rate, bank deposit rates corresponding to different maturities, and average secondary market yield on government securities.

As per the previous recommendations, while post office savings could continue to offer 3.5 per cent, the interest rate on one-year postal deposits was proposed to be benchmarked to the average yield of 364-day treasury bills, while the 5-year monthly income scheme be benchmarked to the average secondary market yield of gilts.

The interest rate on Kisan Vikas Patra were proposed to be on a par with non-bearer certificates after removing the transferability feature of this instrument.