Sales of savings tools hit record

Net sales of savings instruments hit a record high in fiscal 2015-16, as investors were lured in by interest rates which are 5 percentage points higher than those offered by commercial banks on term deposits.

The amount was more than double the target set by the government for the fiscal year: it stood at Tk 33,688.6 crore -- the highest in the country's history -- against the target of Tk 15,000 crore.

“The high interest rates are the main reason for this surge in sales in recent years,” said Ayezuddin Ahmed, director of administration and public relations at the National Savings Directorate.

People, be it government employees, private service holders, businessmen or housewives, are running to invest their savings in these tools because of the returns, which are beyond any market rate.

Currently, banks offer a maximum of 7 percent interest rate for term deposits and it is a minimum of 11 percent for investments in savings schemes, said the official.  

The government sold Tk 28,732.66 crore worth of savings instruments in fiscal 2014-15, while the amount was Tk 11,707 crore the year before. 

In fiscal 2012-13, the total sales of the instruments were a meagre Tk 772.84 crore.  

The high yields are not only creating a heavy burden on the government but are also distorting the interest rate market, economists and bankers said.

“If the trend continues, money will flow out of bank deposits and end up in savings schemes, shooting the government's interest liability up,” said a senior Bangladesh Bank official.

In May last year, the government slashed deposit rates on savings instruments by up to 2 percentage points. But still it is higher than the others.

The interest rate on the five-year family savings certificates has been brought down to 11.52 percent from 13.45 percent, according to a notice of the Internal Resources Division. 

The five-year pensioner savings schemes saw its interest rate slashed to 11.76 percent from 13.19 percent.

The interest rate on the three-year post office savings certificates came down to 11.28 percent from 13.24 percent. For Bangladesh Savings Certificates, the rate is fixed at 11.28 percent from 13.19 percent.

The three-year profit-based savings certificates saw their deposit rates go down to 11.04 percent from 12.59 percent.

On the other hand, commercial banks offer 5.5-6 percent for term deposits and the average return on five-year bonds is 6.5 percent. 

The call money rate has come down to around 3.5 percent in recent days. 

The capital market is not lucrative for investors either.

A senior commercial banker said the rates on government savings schemes are distorting the market in different ways.

“The government set the target to borrow Tk 15,000 crore from savings scheme last fiscal year, but it got more than double the sum.  Consequently, the government's interest liability will shoot up.”

On the other hand, the target to borrow from commercial banks remained hugely unachieved, so the banks would get demoralised as their excess liquidity would be soaring, he said.

Bangladesh Bank data also supports the observation. 

The government borrowed only around Tk 4,000 crore from the banking system against the target of Tk 38,523 crore for fiscal 2015-16, meaning the banks were sitting on excess liquidity.

For the current fiscal year, the government has planned to borrow Tk 43,000 crore from the banking sector to meet its budget deficit.

“We are in trouble as the BB is not buying the banks' money. The repo and reverse repo are totally inactive,” said a frustrated managing director of a private commercial bank requesting not to be named.

Presently, an individual can invest up to Tk 30 lakh in five-year term certificates and three-month profit-bearing certificates. 

An adult female can purchase up to Tk 45 lakh in savings instruments under Paribar (family) Sanchayapatra, and the relatively rich take advantage of this by investing a big sum in the savings schemes.

Khandker Golam Moazzem, additional research director of the Centre for Policy Dialogue, advised the government to properly identify and target the beneficiaries of savings certificates.

“The benefits of the schemes are not meant for high income groups such as top bureaucrats or corporate executives. It should be given to the middle and lower income groups.” 

Proper identification of targeted beneficiaries will reduce the government's interest payment burden even without slashing the interest rates of savings tools, he added.