March 18, 2007	Sunday	Safar 28, 1428

KARACHI, March 17: A notification by the State Bank of Pakistan (SBP) -- of which an ordinary customer knows nothing -- directs banks to ‘block’ the accounts of depositors who have not submitted a copy of the (new) National Identity Card (NIC). At least one particularly large bank is following the rule to the letter.

A customer who holds Rs2 million in his account, walks into the bank’s branch and presents a cheque for withdrawal of a small amount. The cashier punches a few keys and returns the cheque, asking the customer to see the manager.

The manager swirls around in his chair and informs the customer about the SBP notification: “Please provide us the copy of the new NIC and you would be allowed to operate the account; otherwise sorry,” the manager cuts the man short.

“But I have not been notified by the bank of the change of rules; I don’t have a copy of the NIC in my pocket; it is only half an hour to the close of your banking hours and I am in need of money which is mine in the first place,” protests the customer.

The manager, meanwhile, has turned around to attend a phone call and does not bother to respond to the customer’s query of the date since when the SBP circular has been put into effect.

The prosperity of the banking sector is to a good extent established on the grief of the saver. The depositor is known to receive less than one per cent on savings account, while the bank charges fabulously high rates on loans, which analysts calculate allowed banks to enjoy average interest rate spread — the difference between the profit rate they pay to depositors and lending rate they charge from borrowers — for CY06 at a huge 7.40 per cent, up from 6.57per cent the year before.

“Spreads had reached a record 7.5 per cent in June 2006, but have cooled down a bit since,” says analyst Mohsin Merchant.

The small saver, who may turn to the National Savings Centre, could also be faced with a rude shock. He cannot just pull out his packet of money and receive Savings Certificates in exchange. No, not any more. A notification by the Ministry of Finance appears to have been quietly passed on to all National Savings Centres some time in the fourth quarter of last year. It directs that investors in the schemes must first open a (saving) account with not less than an initial deposit of Rs500. The gentle clerk at one of the NSC branches, surrounded by heaps of rotting ledgers and files (technology not having reached there) agreed that it was sore on the small investor.

“Some of the investors in Regular Income Certificates and Bahbood Saving Certificates cannot curb the urge even to trot to the Centre before the month is out in the hope of receiving that month’s return,” he said. And what does the NSS have to offer? The government guaranteed National Savings Schemes (NSS) have been known to be a big recipient of both local and overseas workers' remittances, mainly for security and comparatively higher returns that it historically offered. But all that has changed.

One of the schemes on which most small savers widely depend -- the Regular Income Certificates (RIC) -- launched on Feb 2, 1993 -- pays profit of Rs770 or 9.24 per cent on an investment of Rs0.1 million, with minimum limit of investment fixed at Rs50,000. The profit is then subject to withholding tax at 10 per cent, deductable at source, which in effect works out to a real rate of 8.32 per cent.

The Economic Intelligence Unit (EIU) in its report issued on Saturday, placed the full year inflation forecast at 7.40 per cent. By that reckoning, the small saver who can no more earn but depend on the State for providing him a decent return on his life-time hard earned savings, receive a pittance of less than one per cent.

There was almost a consensus view of analysts that the government was to raise rates of returns on NSS on Jan 1.

Most analysts even predicted rates to be revised upwards by 0.5 per cent.

There was some talk of Central Directorate of National Savings (CDNS) submitting a proposal to the finance ministry recommending revision in returns in line with increase in yields on Pakistan Investment Bonds (PIBs).

Three months into 2007, the poor investors depending on monthly income from savings must make two ends meet with Rs693 per month on investment of Rs0.1 million.

For banks to pay more to their depositors, mixed signals have appeared from the Regulator. On Dec 10, 2006, Governor Dr Shamshad Akhtar of the SBP, while unveiling annual report of the central bank for the fiscal year 2006, had asked commercial banks who, she said, were enjoying a 7.5 per cent spread to pay higher returns to depositors in order to raise the savings.

"These banks are not sharing their high profits with deposit holders. I have told the large banks, to increase return on deposits, otherwise, the State Bank will intervene to get the results," the governor warned and even set the cut-off date to January when an action would be initiated. But the urgings latter died down: “SBP cannot compel banks to increase deposit rates as it is the market forces which determine deposit/lending rates,” the governor retracted.