Wednesday, September 19, 2018 | ePaper

Avoid savings tools as prime borrowing source

  • Print
SAVERS' appetite for high-yielding schemes shows no sign of fading as net sales of savings certificates rose 4.19 percent year-on-year basis in the first five months of the fiscal year. A national daily reported that in the July-November period, the government's borrowing through the savings instruments was more than 70 percent of the entire fiscal year's target of Tk 30,150 crore.
The attraction of the savings tools is their interest rates -- 11.04 to 11.76 percent -- ways higher than the 7 to 8 percent offered by banks on fixed deposits. The increased  selling of the savings tools is a safe choice for the retired and women as the banking system under this government drastically lost people's trust but at the end it emits a bad signal for the economy in general due to rising government expenditure. Rebuilding trust in banks and ensuring investment friendly environment can divert people to opt for other mode of investment.
In fiscal 2016-17, net sales of savings tools hit an all-time high of Tk 52,327 crore, more than 2.5 times higher than the government's target of Tk 19,610 crore. Insiders of Bangladesh Bank said that the trend will continue this year also if the government does not slash the rates. This form of borrowing is pushing up the government's expenditure. Because of the large sales, the government's net borrowing from the banking sector went into the negative in the first quarter of 2017-18. The government borrowed Tk 2,132.3 crore and repaid Tk 5,270.2 crore, taking its net borrowing to Tk 3,137.90 crore in the negative.
Commercial banks have recently increased the rate of interest on their deposit products because of a shortage of liquid funds. Some banks have also adopted an "aggressive lending" policy causing much concern to the central bank as such trends left an adverse impact on their liquidity base. In November, private sector credit growth stood at 19.06 percent, far beyond the target of 16.2 percent set by the central bank for the first half of the fiscal year. Against this backdrop, the banks will increase the rate on their deposit products in the months to come to alleviate the liquidity crunch. The sales of savings tools may decrease when the rate on banks' products will go up. On the other hand, we can say investment in the savings instruments would increase further in the coming days as depositors' confidence in the banking sector has eroded because of frequent financial scams.
The higher rates on the savings tools are encouraging investors to park their money in the instruments which will create a mismatch for the government in dealing with deficit financing. The government should not slash the interest rates on the savings certificates because the tools are mainly bought by middle and lower-middle income groups. But the government should stop the sales of savings tools when its budgetary target is met.

More News For this Category

Educational institutions should not be allowed for political activities

Using classrooms for political activities by spoiling regular classes have become common phenomena in the recent days amid these incidents draw flake from all quarters of society. News media reported

We welcome Islamabad for awarding Bangladeshi-origin refugees Pakistan`s nationality

PAKISTAN government has decided to grant nationality to all Pakistan-born refugees of Bangladeshi and Afghan origins staying there for decades. Prime Minister Mr Imran Khan on Sunday made this announcement

Code of recruitment and selection

Taslim Ahammad :The recruitment and selection practice is one of the most important aspects of running new and established businesses. The right employees can take your business to new heights,

Partnerships can propel the SDGs forward

Michelle Grogg :Partnerships offer a pathway to success in both programs and policies, and they can take many forms. Partnerships in the more traditional sense allow us to directly engage

Revisiting privatization's claims

Jomo Kwame Sundaram :Several arguments have been advanced to justify privatization since the 1980s. Privatization has been advocated as an easy means to:1. Reduce the government's financial and administrative burden,

Readers’ Forum

Misuse of savings certificatesI would like to highlight my views on government savings certificates. The government wants to cut down the interest rate on savings certificates. Many support the idea

A people-friendly healthcare system is needed

THE treatment cost of chronic diseases in our country is very high which pushes many marginal people to financial uncertainty. The government though has extended social safety net over the

Journalists` concern for free speech should not be ignored

EDITORS' Council on Saturday expressed its surprise, dissatisfaction, and shock at the final report of a parliamentary standing committee on the draft Digital Security Act which totally ignored the concerns

Technical education for national growth

Dr. Forqan Uddin Ahmed :Education in a college falls, roughly in either of two categories the world over. A liberal education implies training in the fine arts, the humanities, cultural

Sanctions on Iran will have a bearing on Iraq, too

Christiane Waked :The United States has turned up the heat on Iran by reimposing sanctions last month. But it is Iraq that is caught in the cross hairs. Both Tehran