Savers again at the receiving end

Shamsul Huq Zahid | Published: May 29, 2017 00:00:00 | Updated: February 01, 2018 00:00:00

The proposal of the National Board of Revenue (NBR) to double the existing rate of excise duty on all lending and deposits in banks from the first day of the next financial year is highly irrational. If implemented, the move might help the government to earn some more revenue. But it would prove more damaging to the country's economy in general and banking sector in particular.
The people, who are still keeping their money with banks despite the slashing of deposit rates to an abnormally low level, would feel totally discouraged to make deposits with banks.
The depositors are now actually getting a negative return from their deposits with banks since the average deposit rates for the savers are even well below the officially estimated rate of inflation. The real rate of inflation could be more.
When the central bank, coming under pressure from the multilateral institutions, asked the banks to lower the spread, the depositors were the first casualty. The banks have cut down in phases the interest rates on deposits substantially. They could afford such a reduction since the sector had enough surplus liquidity. The liquidity situation has remained almost unchanged despite some increase in demand for funds from the private sector.
If the proposal of the NBR is accepted, excise duty at a rate of Tk. 1000 would be deducted from deposits ranging between Tk 100,001 up and Tk 1.0 million. The same principle would apply in the case of loans of identical amounts.
If the deposit amounting to Tk. 100,001 is a fixed one for a period of six month, the depositor on maturity would earn a maximum return of Tk. 2500 at the rate of 5.0 per cent interest per annum. If the depositor is eTIN holder, an amount of Tk. 250 will be deducted as income tax. For a depositor without eTIN, the deduction will be Tk. 375. After deduction of excise duty following the proposed hike, the net return from the deposit will be Tk. 1250 for eTIN holding depositor and Tk. 1125 for non-eTIN holding one.
With this kind of paltry return should someone take the trouble of going to a bank to deposit his/her savings? The people would prefer to keep their money at home or decide to make investments somewhere else. A few such investments might, however, prove risky.
Developments in recent times are very much anti-savings. As if the people are being forced to be more consumption-oriented. The poor deposit rates have been discouraging people to save money. The proposed hike in excise duty on deposits would only make things worse for banks and the general savers.
The savers are being offered poor return by banks in the name of so-called downsizing their spread. The stock market is moribund. Going by the ongoing trend none can pin much hope on the market. The bond market is virtually non-existent. The national savings tools are the only avenue that still gives some good return to small savers. However, there are talks in the air that the yield rates of the savings tools would be slashed with a view to reducing the burden on the government. But it can continue offering the current yield rates if it streamlined some of the issues relevant to the sale of the savings tools.
At present, there are scopes for unscrupulous people to make 'benami' investment in savings tools. The sale of the tools could be brought down to a reasonable level if the government made the submission of eTIN mandatory for the buyers. This is mysterious why the policymakers are not taking the suggestion into cognisance..
The savers holding clean funds are now left with little option. They don't know what to do with their savings. Keeping money with banks makes no sense because return on funds is negative.
Such a situation does not anyway help the national savings rate which is still very low. If private savers get a raw deal at all places, there is no reason for the national savings to rise up to the desired level.
Moreover, some risks are created. A propensity would naturally develop among savers, particularly among big savers, to send their funds to safe places for investment. Banks in developed economy have lower deposit rates. But the rate of inflation in those countries is also low. There are also other avenues where people can make safe investments.
In fact, people have been taking out funds in recent years. The latest report of the Global Financial Integrity showed how big funds are being taken out of the country every year. In 2014 alone, more than US$ 9.0 billion had flown out of the country. A part of the fund was surely white. Disgruntled savers have transferred the fund through illegal channel.
The banks and the government should not hold the poor savers hostage as their role in the country's economy is essentially complementary. The policymakers do need to devise means to benefit the savers.
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