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For the last few years, sales of savings certificates have been exceeding the targets fixed by the government in the annual budget. A section of intelligentsia and protagonists of the stock exchange raise brouhaha every year before the presentation of the annual budget demanding the reduction of interest paid against savings certificates. The government has already reduced the rate but the ruckus has not stopped. They think that the investors rush to the savings certificate market because of the chaotic condition of the banks and limping share market. There is an element of truth in it. But savings certificates have been known to the people of the subcontinent for long.
There are two tiers of the share market-- primary market and the secondary market. In the primary market, applications are invited publicly known as IPO (initial public offering). In the share market there is a term known as the market lot-- one cannot buy below the prescribed limit.
Usually number of shares varies from 50 to 500 depending on the face value which amounts to Tk 5,000. In case of oversubscription of the IPO, lottery is held for allotment. There is always uncertainty in getting share in the primary market.
In the secondary market, shares are transacted at the market price. Prices of blue chips are high. Conservative estimates say that no one should come to the share market without having a minimum of Tk 1.0 million as capital. Both in primary and secondary markets, investors can not directly apply for share.
The intending investors will have to open a BO (beneficiary owner) account either with a merchant bank or a brokerage firm or any other assigned financial institution. So, naturally he will have to depend on the advice and proper service of the concerned authority. Moreover, this service, though not wholly satisfying, is restricted in the major cities.
In this connection an important incident needs to be mentioned. A few weeks back, the finance minister was having a pre-budget meeting with the secretaries who informed him that even after government deductions from their pensions, they will receive Tk 1 crore, at the time of their retirement.
Individually, they can purchase savings certificates worth upto Tk 45 lakhs. So they requested the finance minister to raise the slab of buying savings certificates.
These 'nouveau rich' gentlemen did not talk about share market because they very well know where the shoes pinch. Of course, there is a strong argument opposing the huge sale of savings certificates.
The savings certificate is a liability for the government and it has to keep its commitment. If the amount is not invested in the productive sector or not spent in the development of infrastructure properly, the government will have to incur losses.
This needs to be seriously considered. The ceiling for purchase of savings certificates for an individual should be restricted to Tk 4.0 million. This will be sufficient for people who would be eligible to buy savings certificates. No institution should be allowed to buy savings certificates.
It needs to be remembered that the savings certificate is an element of the social safety network. The government has introduced a number of schemes as part of the social safety network such as old age pension, widow allowances, special allowances for destitute women etc.
But these are not enough. The amounts for the recipients are very low and cannot help them make ends meet. Thus existing profit against the savings certificates should not be reduced any more. While such reduction may not be illegal, it will be highly unethical.
The government may think about the development of the fragile prize bond. In India and Pakistan, prize bonds of higher denomination such as Tk 20,000-40,000 are available. Here in Bangladesh, it is restricted to Tk 100 only. Floating prize bonds of higher denomination is likely to attract people who have money but are unwilling to take risks at the share market.