IRD proposal to raise interest rates on savings tools to woo savers

Arafat Ara The Internal Resources Division (IRD) recently sent a proposal to the finance ministry to raise interest rates on savings certificates for attracting the savers toward the state-run savings schemes. In a formal proposal IRD recommended to the Ministry of Finance (MoF) to increase up to 1.50 per cent interest rate on six different savings instruments, said officials. An IRD official told the FE that they proposed 12.50 per cent interest rate for the five- year term and 11.50 per cent for three- year term savings tools. The proposal was submitted for Family Saving Certificate (FSC), pensioner saving certificate, five-year term certificate, three monthly profitable saving certificate, wage earner development bond, and post office savings bank, he mentioned. The IRD also proposed withdrawal of the ceiling on investment of Institutional investment and Social Security Premium (SSP) from the savings tools. The institutional investors now can buy savings certificates of Tk 1.0 million. Due to lower interest rates, the sale of savings certificates are yet to increase although the government introduced social safety-net premium as well as increased the rate of return on some such savings tools in the current fiscal year, said the officials. They said the country's commercial banks offered attractive profit compare to the government savings instruments. So investors are more interested in investing to the bank deposits recently. Private banks are now offering interest rates up to 12.00 per cent on deposits while they propose 14 to 15 per cent interest for large investment for minimising their liquidity crisis. Besides, some banks doubled the interest rates on deposits in six years. But the government fixed the rates of interest including SSP of different savings certificates up to 11.52 per cent after maturity this fiscal year, according to Directorate of National Savings (DNS) officials. Besides, if any investor encash the certificate before maturity,he or she does not get SSP. The rate of SSP is 0.38 per cent to 1.07 per cent. They said for popularising the public savings certificates, there is no alternative but reviewing the existing interest rate of the certificates. The savings certificates sale target during the July-October period was not achieved, they noted. The target of the net sale was fixed at Tk 20 billion but we achieved only Tk 5.90 billion, they mentioned. The government fixed the net selling target of the savings certificates at Tk 60 billion for the fiscal year 2011-12, according to Directorate of National Savings (DNS). If this trend of selling continues, the target of the net borrowing will not be achieved this fiscal year, said the officials. The official also mentioned the present interest rates are not rational compare to the inflation rate. We are trying to follow the countries like Sri Lanka, Indonesia and Malaysia which maintain balance between inflation and interest rates while providing profit to savers under savings schemes, they said. Sri Lanka offers interest rates on savings certificates at 9.25 per cent against the inflation rate of 6.40 per cent, Indonesia offers at 6.00 per cent against the inflation rate of 4.43 per cent and Malaysia gives 3.50 per cent against it's inflation rate of 3.40 per cent. The country's inflation rate was 11.58 per cent in November, showed the Bangladesh Bureau of Statistics (BBS) data. Experts said the massive fall in sale of savings schemes forced the government to turn to the banking system for borrowing. According to the Bangladesh Bank statistics, the bank borrowing in fiscal year 2011-12 has already surpassed the target. The government borrowed from banking system Tk 198.05 billion during the July-November period against the target of Tk 189.57 billion over the fiscal year 2011-12.