Ban on automatic renewal of savings tools recommended

---

FE Report
A government committee has strongly recommended imposition of a ban on automatic renewal of savings instruments, introduction of national identity for buyers and reduction of the current interest rates and cut the maximum ceiling of the savings tools that one can purchase.
The committee on the National Savings Certificates (NSCs) in a report viewed that the savings certificates should cater to the need of the small savers, rather than benefiting the rich.
It said the sale of NSCs to commercial entities should be suspended and focused exclusively on lower and lower-middle class of people.
The committee, headed by Ziaul Hasan Siddiqui, Deputy Governor of Bangladesh Bank (BB) has recently submitted its report to the Ministry of Finance (MoF). Other members of the committee include representatives from Internal Resources Division, Ministry of Law, MoF and Directorate of National Savings.
The committee was formed a few months back amid unprecedented surge in buying of the NSCs, thanks to their better interest rates than those of banks, sources said.
The total sales of NSCs was recorded at Tk 73.97 billion during July-February period of the current fiscal year, sharply exceeding the government's yearly borrowing target of Tk 38 billion, sources in the Savings Directorate said.
"The current maximum ceiling of Tk 5.0 million worth of savings certificates for an individual should be reduced to Tk 2.0 million, while provision for Tk 10 million for joint account should be abolished," a committee member told the FE.
He said if National ID is made mandatory for buying savings instrument, duplication or buying of savings certificates through fake names could easily be avoided.
Currently, renewal of savings instrument takes place automatically after expiry of their three-year or five-year tenure.
The report said the system of automatic renewal of NSCs should be scrapped to avoid fresh borrowing of the government and maintain the accounting system perfectly by the Directorate.
Furthermore, the report suggested reduction of the interest rates of NSCs in line with the rates of other securities of the government, like the Investment Bond, whose interest rate is 8 per cent.
It also recommended enhancement of the capacity of Directorate of National Savings.
Presently, 10 kinds of saving instruments are available for individuals. An individual can invest a maximum of Tk 5.0 million and jointly with another Tk 10 million.
Recently, the International Monetary Fund (IMF) advised the government to reduce the rates of interest on NSCs and suspend their sale to commercial establishments.
The insurance companies, construction firms and suppliers are allowed to purchase National Investment Bond under the current regulations. The increased sale of the bond has taken place in recent times as auction rate of Treasury Bonds has fallen drastically, sources in the financial sector said.
Meanwhile, another FE Report adds: The parliamentary (JS) standing committee on finance has recommended that the government discourage sale of national savings certificates to avoid any distortion in the interest structure.
Chairman of the committee AHM Mostafa Kamal Thursday after a committee meeting told newsmen that the government sold Tk 60 billion worth of net certificates in the first seven months of the current fiscal and it was putting pressure on the lending market.

Cost of bank funds increases as NSD (National Savings Directorate) certificate rate influences the deposit rate, he said.
He, however, said the committee wants to protect the interest of the small savers including pensioners and proposed that the government should offer separate mechanism to give them a handsome risk-free return.
The committee chairman said the NSD certificate is used as 'earnest money' in tender bidding, which is totally unacceptable.
The total lending size of the country is about Tk 2.57 trillion while the NSD certificate sales is about Tk 560 billion that puts huge pressure on the interest rates of the banks, Mr Kamal said.
The JS standing committee held budget meetings with banks, non-banking financial institutions, insurance companies, cold storage owners and REHAB.
The non-banking financial institutions (NBFIs) proposed that their tax rate should be lower than that of the banks, Mr Kamal said.
The committee chairman, also a chartered accountant, said the profits banks show in their financial statements are not the real ones, rather they are accrual-based profits. "Their real profits are much lower."
The Bangladesh Bank has asked the banks and NBFIs to set up subsidiaries to operate merchant bank wings without clarifying the 'double taxation' issue, Mr Kamal said.
"They proposed that the committee put forward a recommendation to clarify the issue, so that they do not face double taxation," he said.
Mr Kamal said that the upcoming budget should be realistic and it should consider the capacity to spend instead of following the cliché of increasing 'the budget size by 17 per cent from the previous budget figure'.
About the real estate developers, he said they are making good contribution to the economy and the government should provide incentives to them to develop townships and expand their business beyond Dhaka.