November 06, 2006	Monday	Shawwal 13, 1427

An additional Rs200 billion will be raised over the next 2-4 years by attracting institutional investment in national saving schemes, according to an estimate by the Central Directorate of National Savings (CDNS).

Barring banks and insurance companies, the ban on institutional investment in national saving schemes was lifted by the government a month back. All registered charities, state enterprises, corporate sector, and private health and educational organisations were allowed to invest in NSS certificates.

The CDNS officials claim that they have received a “very positive response” from public sector corporations and various other official agencies. They hope to raise their Rs1 trillion investment portfolio by 20 per cent from the institutional investors. Earlier it was of 27 per cent.

However, the country’s banks are worried over the decision of the CDNS to seek such investments. They are said to have asked the ministry of finance to get the directorate’s new investment move reversed immediately.

Banks say that the CDNS is creating problems for them by seeking institutional investment. They fear that this decision will affect their liquidity position.

The finance ministry was informed that in case CDNS does not wind up its new investment plan, banks will have to increase their rate of return on deposits and they will have no choice left but to lend the money on higher rates.

But the officials have asked the banks not to be “uncomfortable”. Rather, they should consider reducing their spread between deposits and lending rates. The central bank should advise commercial banks to reduce their spread so that the money could be lent for promoting businesses.

Also, banks were reminded that they were charging up to 12.5 per cent interest rate while CDNS’s interest rate has been brought down to a maximum 9.5 per cent. The banks should not have any complaint. They should learn to compete instead of raising invalid objections.

An official of the ministry of finance said that the banks have made “unprecedented profits” in the last few years. But he conceded that the government needed to be careful in taking decisions to avoid implications that could adversely effect the market position.

“Our argument is that the government has an equal right to raise money from the market”, said the Director General of CDNS, Owais Pirzada. For this, the government is not giving his organisation any additional incentive, he said.

“We have started receiving investment, though it is not very large as we have just begun our operations”, the CDNS boss added.

A number of institutional investors were in touch with the CDNS in discussing modalities. “The kind of security we are providing to the investors is considered unmatched and that is why we hope that the they will consider putting their money in our schemes”, he said.

Asked why the banks and the insurance companies were excluded from investing in directorate’s various saving instruments, he said that banks were already in the deposit taking business. It was not logical to ask them to do so. Similarly, the insurance companies were also, in a way, involved in mobilizing money from the market.

He informed that CDNS has collected net Rs14 billion in the first quarter of 2006-07 which is less expensive than the money raised through Pakistan Investment Bonds (PIBs) and the Treasury Bills (TBs).

The money which is being received from Overseas Pakistanis in the shape of foreign exchange is very economical compared to those loans being offered by foreign institutions including the Asian Development Bank (ADB) and the World Bank, charging 2.5 per cent plus London Inter-bank Offered Rate (LIBOR) rate which means about 7.5 per cent.

“Then in our schemes, the exchange risk is of the buyer,” he said, adding that CDNS takes investment from Overseas Pakistanis in foreign exchange and returns the money in local currency- both on maturity and in case of withdrawal.

However, he said the directorate was facing difficulties to expand its operation beyond United Arab Emirates (UAE) where there were no branches of the Pakistani banks. There were few branches of Habib Bank Limited (UBL) and the United Bank (UBL) in UAE and Oman but there were no such branches in Saudi Arabia, which does not allow foreign banks to operate in the kingdom.

“But now we are discussing modalities with the State Bank of Pakistan to have certain mechanism to raise money in Saudi Arabia and from those countries where there are no branches of our commercial banks”, Owais Pirzada said.

“Once these modalities were sorted out, we will go for local banks of Saudi Arabia and others to sell national saving products on behalf of the CDNS”.

He is very confident that the CDNS will greatly help in collecting additional foreign remittances from the Overseas Pakistanis by what he termed putting a “dent” on the illegal ‘hundi’ business.

He said formal banking channels were being encouraged by the CDNS to remit foreign exchange by the Overseas Pakistanis. He said “pay day” is a terminology used by the ‘hundiwalas’ to remit funds on the same day and that is why their business has not faced much problems.

The need of the hour, he said, is to ensure transmitting foreign funds through formal banking channels the same day and, “we will hopefully do this job for the government”.

He did not believe that CDNS business has gone down due to the reduction in interest rates on NSS investments.

The director general of the CDNS said that investors have been greatly facilitated in recent times that helped the directorate to get additional business.

The withdrawal from saving accounts, which was earlier permissible twice a week, has been extended to thrice a week. Likewise, the principal amount, deposited in the morning can be withdrawn in the afternoon as the investment procedure has been greatly streamlined.