Disciplining savings tool sale

The central bank's latest move to ensure digital disbursement of yields and principal amount of the national savings certificates (NSCs) has been long overdue. The facility that was basically designed to benefit women savers, pensioners and other retirees is being widely abused at the cost of national exchequer. The Bangladesh Bank (BB) in a circular, issued on Thursday, asked all scheduled banks to transfer both yields and principal amounts of NSCs by using the Bangladesh Electronic Funds Transfer Network (BEFTN), meaning that payments would go to beneficiaries' accounts automatically.

The BB's step follows an earlier government directive that made submission of tax identification numbers, national identity cards, bank account numbers and phone numbers mandatory while purchasing savings tools. The new requirements are aimed at stopping beyond-the-limit and 'benami' investments in NSCs. The government savings tools are extremely popular with the middleclass these days because of their attractive yield rates. The popularity went a few notches up because of declining interest rates of term deposits with banks.

The higher yields, however, prompted an unscrupulous section of savers to cross the limit set for individual investment in savings tools. This has been possible because of the government's very relaxed approach towards the sale of NSCs that have been fetching substantial volume of funds necessary to meet the fiscal deficit. Until recently, the relevant authorities used to ignore advice to put in place some measures so that the limit of investment is not overshot.

The volume of funds that the government disburses as profit to holders of NSCs is sizeable. Though the NSCs are helping the government to meet its budget deficit, the same are imposing a heavy burden---the payments of yields-- on the public exchequer. However, it is quite clear that the government is unwilling to part with these instruments or make any significant cut in their yield rates. Experts do have varying opinions on the issue---some are in favour of a drastic cut in yield rates while others want the current rates to continue since NSCs are helping the middleclass savers.

So, it is incumbent upon the government to ensure that the sale of the savings tools remains confined to people who deserve to benefit the most. Given the current situation in the country's financial sector, it is unlikely that genuine savers would withdraw their investment from the NSCs in the event of any reasonable yield-rate cut. If the requirements made mandatory for anyone wanting to invest in NSCs and digital transfer of yield and principal to the holders' bank accounts are adhered to faithfully, the abuse of the facility would surely be contained.

It needs to be, however, mentioned here that genuine buyers do face hassles while purchasing NSCs. Most branches of designated banks, when approached, refuse to sell the same on various pretexts. The sale of the instruments needs to be smooth bearing in mind the interest of people who deserve the most out of the facility.