One of the impacts of the commercial banks reducing their lending rates (5-5.5 per cent per annum for good customers) owing to heavy liquidity and treasury bills rate reaching historically unprecedented lowest level of 1.6 per cent p.a. has been that the banks started lending to their valued customers at the above rates against the security of the special savings certificates (SSCs)/ defence savings certificates (DSCs).

The interest rate on the SSCs currently is 8.5 per cent p.a and after deduction of 10 per cent withholding tax and payment of interest to the lending bank, the investor was getting the net return of 2-2.5 per cent p.a. without doing anything. The lending commercial banks were also happy as they had found out a method of deploying their idle funds.

It is believed that the big and influential parties had turned this into a chain. For example party “A” initially invested,say, Rs 10 lakhs in SSCs, pledged the securities with the bank for obtaining loan and the amount of loan was again utilized for purchase of another SSCs and so on. The loser in this process was the government and ultimately the tax payer because its interest payment liability is obviously met from the budget revenue.

There was, therefore, all the justification for stopping this malpractice. And the government/State Bank of Pakistan (SBP) could conveniently do this by imposing a ban on lending against the security of these government instruments. The SBP could also direct the commercial banks to call back the entire money lent against the security of these instruments.

But how could the government/ SBP follow the simplest method to overcome the problem. The aim of the government/SBP has all along been to cause inconvenience to the general public. Therefore, the government through the Ministry of Finance has precluded commercial banks from issuing these instruments with effect from the 15th June,2003 without realizing the difficulties which this decision has created for the general public. Now that these certificates can be purchased from SBP ( and a few savings centres) only, the question is how the 14-15 field offices located in the big cities can cater to the needs of the entire population living in rural/urban areas of the country.

Obviously, the SBP offices are not in access of all the citizens. One can also well imagine of the rush on the SBP offices due to exclusion of the commercial banks particularly when no special arrangements appear to have so far been made by the SBP to cope up with the situation. The small investors’ moving to the SBP for the purpose from their residences in far-flung areas is also fraught with danger as the numerous cases of snatching away of the money/vehicles are daily reported in the press. A small investor feels comparatively safe in getting the job done through the commercial bank branch nearest to his residence.

It will be in the interest of the general public if the government reconsiders its mindless decision and takes it back as the purpose of stopping malpractices for prevention of which this “novel” decision has been taken can be achieved by issuance of a circular by the SBP placing ban on commercial banks lending against the security of these instruments.

These malpractices would of course be of recent origin. If the government feels shy in taking back its decision, an alternative can be that commercial banks may be allowed to issue these instruments afresh on the maturity of the ones purchased through them upto the 31st December,2002. This will save the public from the unnecessary embarrassment and the danger of their hard-earned life-long savings being snatched away by the looters in the city streets.

A.M. Talha

Karachi