The Bangladesh Bank has opposed a plan of the government to increase interest rates of national savings certificates saying that the proposed measure will hurt the business of banks as their cost of obtaining funds will increase. Once the yield rates on the national saving certificates are increased, the banks will have to hike the interest rates on deposits resulting in an inevitable negative consequence on the economy, BB said in correspondence with the finance ministry on Wednesday.
‘Bangladesh Bank does not support the proposal of increasing the interest rates of savings tools,’ said the position paper of the central bank after it was asked to give its opinion on the proposal made by a high-powered committee, headed by an additional secretary of the ministry.
The committee recommended a hike in the existing yield rates of all categories of saving tools, ranging from 0.23 percentage point to 1 percentage point, to attract savers and lessen the government’s dependency on bank loans to finance its budget deficit, a high official in the ministry said.
Presently, the rate of return on five-year Sanchayapatra (saving certificate) is 13.19 per cent including 0.99 per cent in Social Security Premium (SSP), three monthly Sanchayapatra (3-year) is 12.59 per cent, the rate for five-year Pensioner Sanchayapatra is 11.45 per cent, the rate of return for Poribar Sanchayapatra is 13.45 per cent and the rate of return for Postal Savings Bank (fixed deposit) is 13.24 per cent.
The BB position paper said that the central bank had been pursuing a monetary policy aimed at boosting bank lending in the private sector at lower interest rates and to attain the goal, it had cut the Repo rate (the interest rate in which BB lends money to banks) and reverse Repo rate (the interest rate at which BB takes loan from the commercial banks,) in February.
‘The BB has long been pressing the commercial banks to reduce their deposit and lending rates through moral persuasion,’ the paper further said.
In the current situation, if the yield rates of saving tools are increased, it is very likely to trigger a hike in the bank deposit rates which would affect the ‘cost of funds’ of banks and eventually shoot up their lending rates, the position paper clarified.
Currently, bank interest rates on term deposits range between 10 and 12.5 per cent, while yields rates of the two–year and five-year Treasury Bonds are between 10 and 12 per cent.
Bangladesh Bank officials said that in the name of protecting the small savers it would be unwise to destabilise the already ailing banking sector as their profitability had experienced a heavy setback in recent years with soaring classified loans shattering banks and other financial institutions.
A finance official said they would carefully examine the opinions of Bangladesh Bank before making any final decision.
The initiative to increase the interest rates for savings tools was taken due to the poor non-bank borrowing by the government as the investment in the tools by clients was only Tk 772 crore in the last fiscal year against the target of Tk 7,400 crore.
The government set the net borrowing target from the savings certificates at Tk 4,971 crore for the current fiscal year.
The five-member committee, headed by Finance Division additional secretary Ranjit Kumar Chakraborty also recommended the withdrawal of existing 5 per cent tax at source, lifting the current limits on investment in the saving tools and accepting those as collaterals against bank loans.
-With New Age input
