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Professor Mustafizur Rahman on savings and banking

The upward trend in the net investment of the savings tools would play a positive role in managing the deficit financing of fiscal budget as the government had recently started borrowing heavily from the banking sources

Published in New Nation on Saturday, 10 October 2015.

Higher rate of interest attracts investors

NSCs selling on rise

The huge rising of sale of national saving certificates and bonds would facilitate the government to meet their budget deficit; simultaneously it will reduce the private sector growth, which is not a good sign for attaining a sustainable economy.

Abu Sazzad

Net investment in National Savings Certificates (NSCs) and bonds have increased by 6.90 per cent in the first two months (July to August) of the current fiscal (FY) 2015-16 due to higher rate of interest. According to the latest data released by Bangladesh Bank, the net investment in NSC and bonds during the first two months of the current fiscal stood at Tk 4,627.19 crore compared with Tk 4,328.48 crore during the corresponding period of the last fiscal.

Trend to invest in the NSC and government bonds continue despite interest cut by the government in May. The government on May 23 cut the rate of interest by about two per cent on its different savings tools. Actually, the government faced pressure to pay interest to the clients, who invested in the NSCs in recent years as the interest rate for the savings tools was between 12.59 per cent and 13.45 per cent before the latest rate cut.

The reason of increasing investment is that the interest for the savings certificates and bonds is still much higher than that of the banks’ deposit products.

According to the sources, banks are now offering six  to 7.5 per cent interest on their different deposit scheme. On the other hand, banks are still continuing to cut the rate of interest on their deposit products as they have been facing excess liquidity over recent months due to lower credit demand from the industrial sector amid political uncertainty.

Excess liquidity of the banks are now nearly about Tk 1,15,000 crore, also said the sources.

Centre Policy Dialogue (CPD) Executive Director Mustafizur Rahman said, the net investment in the savings tools would increase more in the coming months if the banks failed to speed up their loan disbursement to the businesspeople.

The banks are continuing to show a reluctant stance to collect deposit from the clients that ultimately hit on the interest rate of the deposit products due to the lower loan disbursement, he explained.

The government has set a net investment target of savings tools amounting to Tk 15,000 crore for the FY16.The government would be able to achieve the target easily if the existing trend in the net investment continued in the coming months, said the CPD Executive.

The upward trend in the net investment of the savings tools would play a positive role in managing the deficit financing of fiscal budget as the government had recently started borrowing heavily from the banking sources, he said. The government is now considering speeding up its implementation of various development projects and so it has to take loans from the banking and other sources, mainly selling the savings tools, he also said.

The huge rising of sale of national saving certificates and bonds would facilitate the government to meet their budget deficit; simultaneously it will reduce the private sector growth, which is not a good sign for attaining a sustainable economy, claimed an economist.

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