Savings tools once again trump bank products
Savers have started to flock back to savings instruments with net sales hitting a six-month high in July as bank deposit products continue to yield underwhelming returns.
Net sales of savings instruments stood at Tk 5,036 crore in July, the highest since February, according to the latest data of the Directorate of National Savings Certificates.
In January, net investment in the tools stood at Tk 5,140 crore, after which it ranged between Tk 3,100 crore and Tk 4,200 crore.
The Bangladesh Association of Banks (BAB), a forum of bank directors, had taken a decision to lower the interest rate on savings and lending to 6 percent and 9 percent respectively from July 1, which lured savers to park their funds with government tools.
Some banks, however, have set the interest rate as high as 8 percent on their fixed deposit schemes, going back on their promise because of an acute liquidity crunch.
In contrast, the interest rate on savings certificates ranges from 11.04 percent to 11.76 percent.
At a meeting with the chairmen and managing directors of banks on August 2, Finance Minister AMA Muhith hinted at lowering the interest rate on savings instruments.
But he backtracked soon after, saying the new government, which would take office following the national election scheduled later this year, will take a call on the matter.
"An imbalance has emerged because of the large interest margin between the bank products and the government tools," said AB Mirza Azizul Islam, a former caretaker government adviser.
He said depositors are not willing to park their funds with banks considering the lower interest rates, which are almost same as the rate of inflation. In recent months, inflation has been hovering around the 5.50 percent-mark.
"The government claimed that the middle- and lower middle-income groups are being benefitted from the high returns on savings tools. But many unscrupulous people have invested in the tools breaching the limit," said Islam.
The government may have to a face an acute interest burden because of the high returns on the savings tools, Islam said, while advising the government to stop the sales of savings tools when its budgetary target is met.
Huge borrowing from savings tools has also compelled the government not to take low-cost loans from banking sources.
In 2017-18, the government borrowed only Tk 5,666 crore from the banking sector by way of treasury bills and bonds against the annual target of Tk 28,203 crore.
The rate of interest on bank borrowings is between 3.10 percent and 8.09 percent.
On the other hand, the net sales of savings certificates stood at Tk 46,758 crore last fiscal year against the annual target of Tk 44,000 crore.
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