Mumbai: The Reserve Bank of India (RBI) has hiked the interest rate on floating rate savings bonds (2020) from 7.15 percent to 7.35 percent.

The increase in floating bond interest rates comes after the government raised the interest rate on National Savings Certificates (NSC).

As per the RBI's press release, "In terms of Para 13 (ii) of Government of India Notification E.No.4(10) B(W&M)/2020 dated June 26, 2020 on Floating Rate Savings Bonds, 2020 (Taxable)- FRSB 2020 (T), the coupon/interest rate of the bond would be reset half yearly, starting with January 01, 2021 and the coupon/interest rate will be set at a spread of (+) 35 bps over the prevailing National Savings Certificate (NSC) rate.

The floating bond interest rate is linked to the NSC rate. According to the scheme guidelines issued on June 26, 2020, these floating rate bonds will earn 0.35% above the current NSC rate.

Following the small savings interest rate increase, the NSC will earn 7% for the January-March quarter of fiscal year 2022-23, up from 6,8% in the previous quarter.

The NSC interest rate has increased by 0.2%. The RBI floating rate bonds will be subject to the same interest rate hike as the NSC.

The government reviews the NSC interest rate every quarter. The NSC interest rate is determined by the government using the formula proposed by the Shyamala Gopinath Committee.

According to the Committee's formula, the interest rate on various schemes should be 0.25-1% higher than the yields on government bonds of comparable maturity.

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