Astronomical sales of national savings certificates has become a grave concern for policymakers and bankers, as their high interest means the government's interest burden is soaring and banks are being deprived of deposits, said the Bangladesh Institute of Bank Management.
The government's savings tools are now offering interest rates between 11.04 and 11.76 percent in contrast to 5 to 8 percent rate given by banks.
This has prompted savers to flock to NSCs, so much that the government's target of borrowing Tk 26,197 crore from the tool this fiscal year was met in just the first seven months.
Between July and February, the net sales of the savings tools stood at Tk 35,602.49 crore, up 7.49 percent year-on-year, according to data from the Department of National Savings.
Total outstanding sales of NSCs stood at Tk 262,760 crore as of December last year, up 193 percent from four years earlier.
The above market interest rate on NSCs may make government borrowing from the channel unsustainable, said the BIBM report. It is also impacting the growth of bank deposits, which in turn may create liquidity problem for the banking sector.
The report, which was unveiled yesterday at a seminar, went on to suggest a floating rate based on the average interest rate of government securities (treasury bills and bonds) along with some additional basis points for the savings instruments.
“The high volume of savings tools has some important implications for fiscal-monetary management,” said SM Moniruzzaman, deputy governor of the central bank, at the seminar held at the BIBM auditorium.
The sales of savings tools increased beyond the budgetary target by a sizeable margin in the last couple of years.
As a result, the government borrowing from banks has reduced, cutting down the interest rate on treasury bills and bonds, he said. To compete with the government savings tools, banks need to collect deposits at higher interest rates.
“Thus, the existing administered interest rate of the government tools appears to be a challenge for fiscal-monetary coordination.”
The difference between the government tools and the bank deposit or treasury securities rates, among others, is generally seen as responsible for the recent rise in the NSC issuance.
A portion of wealthy people may be parking their money heavily in the instruments, forcing the government to borrow more from the tools than its budgetary target, Moniruzzaman said.
At present, there is no database of the savings instruments to verify which segments of the society are investing the maximum amount of money in the tools, he added.
Barkat-e-khuda, Dr Muzaffer Ahmad chair professor of the BIBM; Helal Ahmed Chowdhury, supernumerary professor of the BIBM; Md Ali Hossain Prodhania, managing director of Bangladesh Krishi Bank; and Yasin Ali, supernumerary professor of the BIBM, also spoke.
Prashanta Kumar Banerjee, director and professor of the BIBM, presented the findings of the report.