Dhaka, Bangladesh
Govt move on postal savings frustrates depositors

Govt move on postal savings frustrates depositors

News Report The government’s latest move to cut interest rates on savings in post offices has created frustration among savers and is likely to bring down savings and encourage the return of illegal multi-level marketing (MLMs). For example, interest rate on three-year term fixed deposits was reduced to 6 per cent from 11.28 per cent as the government aims to bring down interest rates in bank deposit and lending. The interest rate on ordinary and fixed deposit accounts in post offices was almost close to the interest rates offered by national savings certificates until last week. But the interest rates on deposit accounts in post offices were halved suddenly while the interest rates on savings certificates remained unchanged. The interest rates on ordinary accounts and fixed deposit accounts in post offices have been reduced in line with the banks in a bid to create a balance, said a finance ministry official. This is the first time the interest rates of deposit accounts in post offices and savings certificates of the DNS saw a gap in interest rates. Khondker Ibrahim Khaled, a former deputy governor of Bangladesh Bank, said the latest move would discourage savings. “The interest rate on banks’ savings has been cut by force. Now, the interest rate on deposits in post offices has also been reduced. Such an action affecting the market mechanism will not bring any good to the economy,” he said. The government’s total outstanding liability stood at Tk 289,267 crore as of June 2019. Of the amount, ordinary accounts and fixed deposit accounts in post offices were 13.97 per cent, according to DNS data. Earlier, savings accounts in post offices saw soaring deposits in recent years thanks to high interest rates offered by the government to tempt people in the suburbs and rural areas to use formal channels for parking their funds. Deposits in ordinary accounts in post offices more than doubled to Tk 2,930 crore in fiscal 2018-19 from Tk 1,325 crore four years earlier, according to data from the Department of National Savings (DNS). A similar trend has been seen in cases of fixed deposit accounts in post offices. Savers deposited Tk 13,950 crore in fiscal 2018-19 in fixed deposit accounts in post offices, which was more than two and half times the deposits received in fiscal 2014-15. “High interest rate appears to be one of the reasons behind the rising deposits,” said Khandker Shahnur Sabbir, deputy postmaster general of Bangladesh Post Office. Due to the government’s crackdown over the last several years, there has been almost no presence of multi-level marketing (MLM) firms that used to offer exorbitantly high interest rates to attract deposits. The absence of these informal channels might be another reason behind people’s interest in depositing money in post offices. “And a huge number of small savers in the rural and suburban areas deposited their money in post offices,” said Sabbir, also a senior postmaster of Dhaka GPO. Until February 12, the finance ministry offered as high as 11.28 per cent interest on a three-year fixed deposit account with post offices, which is higher than the interest rates given by banks. In case of ordinary accounts in post offices, the interest rate was 7.5 per cent, which was also higher than the rates offered by banks for savings accounts. Last year, net sales of savings instruments continued to post robust growth this fiscal year riding on the higher returns than its alternatives. Bangladesh Bank data showed net sales of savings tools stood at upwards of Tk 11,650 crore during the July-September quarter, up 74.37 percent year-on-year. Over Tk 3,854 crore worth of savings certificates were sold in September this year, up by a whooping 88 percent from a year earlier. BB officials and commercial bankers attributed the growth to the returns the government offers for investments in savings tools. Investors were lured in by the interest rates, which are 5-6 percentage points higher than those offered by commercial banks on term deposits. “High interest rates are the main reason for this surge in sales in recent months,” said Ayezuddin Ahmed, a director of the Department of National Savings. People also felt a sense of security in investing their money in government’s savings schemes, he said. But BB officials and bankers said the higher rate of returns is not only distorting the market but also creating interest payment burden on the government, which could lead to a mismatch in treasury management. “The rate is distorting the market. More people will rush in to buy the instruments,” a BB official said. The net sales of savings certificates were more than double the target set by the government for fiscal 2015-16: it stood at Tk 33,688.6 crore — the highest in the country’s history — against the target of Tk 15,000 crore. The government sold savings instruments of Tk 28,732.66 crore in fiscal 2014-15, while the amount was Tk 11,707 crore the year before. In fiscal 2012-13, the total sales of the instruments were a meagre Tk 772.84 crore. People, be it retired government employees, private service holders, businessmen or housewives, are running to invest their savings in these tools because of the returns, which are beyond any market rate. Currently, banks offer 6-7 percent interest rate for term deposits and it is a minimum of 11 percent for investments in savings schemes. “I don’t understand why the government is borrowing at so high a cost when the money is available at much cheaper rates,” said Ahmed Kamal Khan Chowdhury, managing director of Prime Bank.

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