Cut in interests, investment ceilings of savings tools likely

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S M Jahangir
A 0.5 per cent cut in the interest rate on the state-run savings instruments and reduction of the investment ceilings are under study of the government, officials said.
A high-profile committee recently in its report recommended the cut in the interest rate on the state-run savings instruments and limiting the investment ceiling to the finance ministry, they said.
"The committee has suggested a nominal 0.5 per cent cut in the interest rates on most of the state-run savings instruments and trimming down the investment ceiling. The suggestions are now under consideration of the finance ministry," a source close to the committee told the FE.
In its report the committee also recommended discontinuation of the current provision for automatic renewal of investment in savings instruments, and also discouraged institutional investment in some selected savings tools, the official said.
The body has also suggested that the investment ceiling should be reduced Tk 3.0 million from the present level of Tk 5.0 million, while the volume should be revised downward to Tk 6.0 million for joint investors instead of present Tk 10 million.
According to official sources, the committee's suggestion on the slashment of interest rates came in line with the recent cuts in the deposit rates by the country's commercial banks.
Following a Bangladesh Bank intervention, commercial banks have reduced both deposit and lending rates by 2.0 per cent to 3.0 per cent.
Against the backdrop, the country's commercial banks have been pursuing the government for reduction of interest on state-run savings instruments, sources said.
A few months ago, leaders of the commercial banks at a meeting with Finance Minister AMA Muhith underlined the need for reduction of interest rates on government-run savings instruments in line with that of the banking system.
Currently, some nine types of savings certificates and investment bonds are in operation under the National Savings Directorate (NSD) and their investment return is calculated as high as 12.50 per cent per annum, which was comparatively lower than that of bank deposits.
According to the local banks, the rates of interest on government's savings certificates still remain higher than that of the banks, which could, according them, divert savers to such state-run investment tools.
Following the demand, the finance ministry formed the committee to examine as to whether there is a need to streamline the operations of NSCs and submit its recommendations to the government.
Besides, an unusual growth in the investment under the NSCs in recent times also prompted the government to form such a committee, aiming to limit its borrowing from the internal source.
According to the official figures, the government's borrowing from savings instruments hit a record high in the first three quarters of the current fiscal as investors continued to pump funds into the state-run investments tools.
The government borrowed a net amount of over Tk 85.29 billion in the July-March period of the 2009-10 fiscal, which was nearly four times higher than that of the matching period of last fiscal, the figures showed.
As a result, the government, according to official figures, had to pay about Tk 51.35 billion as interest until March of the FY 2009-'10 on account of servicing its huge public debt.