Public unease with savings certificates

There are reports of unease among a large section of the fixed-income groups in the country who rely on savings certificates for their very survival. The economic rationale from a strictly theoretical point of view may, however, not favour higher rates of returns on such instruments, but the ground reality merits consideration in deciding on the fate of the savings tools for the sake of a wide segment of the population, particularly the retirees and senior citizens, who have no other choice but to depend on them.

Although the government has neither announced yet anything in categorical terms to restrict sales of savings certificates nor has it decided on slashing their yield rates, people are worried about the state of things. This is particularly because of the 'pressure', coming especially from the International Monetary Fund (IMF) and World Bank (WB), on the government for putting a drastic cut on the rates of returns on such savings instruments. In this context, the Finance Minister's statement in Jatiya Sangsad during the last budget session about slashing the rates of return on savings instruments had earlier triggered lots of worries among all concerned sections. The minister, however, had then assured the pensioners, lower middle-class and middle-class beneficiaries of their income earnings not being adversely affected anyway by a reduction in yield rates on government's savings certificates that have otherwise a capping on the limit of individual holding of each category of such instruments. The logic that is cited in favour of slashing the yield rates on such instruments, is that the government borrowings from the sales of savings certificates is costlier, compared to 5.0-7.0 per cent rate of interest on deposits with the commercial banks, because of higher rates of return on such instruments. That may be partly true. But the fact remains incontestable that savings certificates, being essentially a social security tool, must not be compared with bank deposits. A section of economists and bankers argue that the government is footing the bill on account of returns on its saving certificates from taxpayers' money and its benefits are going to the taxpayers again. But many people also oppose the move for a drastic cut in yield rates on government's savings tools, fearing that this might lead fixed income groups to invest in risky stock market.

It is, however, clear enough that the increasing sale of savings certificates is due to the absence of alternative investment tools where the middle and low-middle class, pensioners and fixed-income groups can put in their hard-earned money with a sense of security. The government needs to be pro-active about making other areas of investments like stock and bond markets attractive, safe and sound to address the problem. Meanwhile, there are also stronger views from different quarters who are of the opinion that borrowings from sales of savings certificate should not be stopped when the government was recapitalising the scam-hit state-run banks and writing-off of their huge bad loans -- and that, too, with tax-payers' money. As such, the reluctance of the concerned authorities to ensure the availability of savings instruments at retail outlets, mostly the banks, as per their demand, as is stated to be the case now, has caused disconcert among the senior citizens in particular. This concern needs to be mitigated on a priority basis.

What is important in this regard is to see whether there is any application flaw in the process of selling the savings certificates. There are reports that allege that the designated agencies do not always adhere to the basic norms and principles of selling such instruments. To ensure that only 'eligible' persons are in possession of the savings instruments, the authorities should make it mandatory for their buyers, like the case with those opening bank accounts, to submit tax identification numbers (TINs) along with those of their national identity (NID) cards. Those who do not submit their TINs, while opening their accounts with banks, are subject to a higher rate of withholding tax at source on interest earnings on their bank deposits. There is no reason why similar measures cannot be taken in the case with government's savings tools. That will make it easier to prevent 'benami' or fictitious holding of national savings certificates -- and also beyond the limit that is now in place for an individual. Furthermore, the institutional investors in five-year savings certificates should be discouraged in putting in their surplus funds in such instruments. There is thus the need to discipline the sector which will largely remove many anomalies, so that the benefit of this social security tool can reach the target groups.