The ongoing political turmoil is taking its toll on small savers. Rise in cost of living due to price increases of essential items has forced many of them to encash their savings investment. If the political stalemate continues their savings will be seriously depleted very soon.
The small savers are suffering loss of savings due to decisions of banks regarding payment of interests. Banks and other financial institutions are cutting back on interest rate payment to depositors. They are doing this under the pretext of law and order situation that has reportedly negative effect on their business. Their lending rates have, however, remained more or less unchanged.
According to sources from state-owned banks, interest on deposits will be reduced in the near future. The highest interest rate will be fixed at 8.50 per cent. At present the highest rate offered is 9 per cent. The rate of interest on Sanchaypatra i.e. savings certificates may also be reduced from next July. Experts apprehend that if interest rate declines on these two reliable and popular savings instruments small savers will be hard hit. Out of frustration they may choose to invest in risky instruments offered by unreliable financial institutions. They may fall prey to financial scams used by these companies as it happened in a few cases in the past.
Deposits are kept in banks by middle aged small savers and pensioners. Wage earners also use these channel to invest their money. They will be hard hit if the rate of interest is suddenly reduced. As it is, interest offered by banks is already lower than on savings certificates. To reduce it further will have negative impact on depositors. Since banks have not reduced their lending rates they can afford to keep the deposit interest unchanged, according to financial analyst.
According to the Bangladesh Bank, commercial banks are still maintaining the same difference between deposit interest rates and lending rates. In some cases the difference has widened. Compared to lending rates, deposit interest rates have been reduced more. In January this year the average interest on deposits was 7.25 per cent. The comparable rate in November last was 7.53 per cent. The lending rate during this period was 12.40 per cent.
Deposits by small savers are declining. According to an estimate it has declined continuously for the last three months. In January it declined by an amount of 7.65 billion Takas which is less then 1.84 per cent of the January figure last year. At the end of January this year the total deposits in the banking sector stood at Taka 70.28 billion. It was 72.0 billion Takas in the previous month. The decline in deposits has almost become a trend in the recent months. Some small savers transferred the bank deposits to savings certificates because of higher rate of interest offered by the latter. But if interests on savings certificates are also reduced they will not have any reliable alternative. Most of the small savers are not experienced in investing in stock market. They are likely to lose money if investment in stocks is made. Many may be attracted by offers of high interest made by private financial companies, even co-operative banks. The experience with such investment has not been encouraging in the past.
One solution to the reduction of interest rates by the banks is to maintain the present level of interest on government savings certificates. The popularity of savings certificates is seen by the fact that during the first six months of the current fiscal year the net investment in savings certificates was 13.13 billion Takas which is one and a half times the target fixed for the whole year. The government has decided to take 9.56 billion Takas as loan through savings certificates which has been surpassed by a big margin. In addition to individual savers various institutions are also investing in savings certificates.
The main reason for the government decision to reduce interest on savings certificate is the burden it places on the budget for debt servicing. Inadequate revenue collection has made this financial burden heavier. But if simultaneous with the reduction of interest on bank deposits the same on saving certificates also takes place the small savers will be almost ruined. Taking this into account the government should go for a moderate reduction in the interest rate or preferably no reduction at all. At present the highest rate of interest on savings certificates is 13.50 per cent. The average rate of interest on deposits offered by banks is 7.25 per cent. Taking a middle course the government may fix interest on savings certificates at 11 to 12 per cent. This will give some relief to the debt burden on the government while at the same time being attractive to small savers.
Saving is the life blood of an economy. It is the source from which investments are made. Banks' intermediation is effected through this instrument. Banks, therefore, have a responsibility to attract depositors by offering reasonable interest rate.
For the government purchase of savings certificates is a safe window to mobilize resource without crowding out private borrowers from banks. Savings certificates also serve as safety net for many, particularly small savers. The government, therefore, has a responsibility to keep savings certificates attractive by offering reasonable rates of interests.
Savings promote growth through contribution to gross domestic product (GDP). There is a positive co-relation between savings and GDP. The aim should be to reach a high savings-GDP ratio through various instruments. Saving is also anti-inflationary. In the monetary policy it should be given due importance.                   Â
Ataturk Pasha ataturk.pasha@yahoo.com
Small savers at bay
Hasnat Abdul Hye | Published: April 08, 2015 00:00:00 | Updated: November 30, 2024 06:01:00
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