With decline in interest rates on small savings, National Small Savings Fund (NSSF) loan rate to the Centre as well as states has also been lowered to 8.8 per cent from 9.5 per cent.
NSSF invests its net collection as loan to Centre and State and UT governments.
"In line with the revision of interest rates of Small Savings Schemes, interest rates for the National Small Savings Fund (NSSF) loan to Centre and States for FY 2016-17 has been revised and fixed at 8.8 per cent," the Finance Ministry said in a statement.
The interest rate of NSSF loan to Centre and States for Financial Year 2015-16 was 9.5 per cent.
"This interest rate was felt to be burdensome on States' economies, In the context of easing the transmission of the lower interest rates in the economy, the Government has taken a comprehensive view on the social goals of certain National Small Savings Schemes," the Ministry said.
Last month, the government had slashed interest rates on all small savings schemes, including PPF, Kisan Vikas Patra (KVP) and senior citizen deposits, to make them more market aligned.
Interest rate on Public Provident Fund (PPF) scheme has been cut to 8.1 per cent for the period April 1 to June 30, from 8.7 per cent, at present.
Similarly, the interest rate on KVP will be reduced to 7.8 per cent from 8.7 per cent while senior citizen savings scheme of five years would earn 8.6 per cent interest compared with 9.3 per cent.
