Any significant step that encourages and rewards small savers has to be welcomed in a country with one of the lowest domestic savings rate. The enhanced savings account is a meaningful step to remedy a situation in which small savers were given a raw deal for too long.
The depositors who were barely getting a half or one per cent interest on their savings were real losers in the face of the inflation rate of six to ten per cent and food inflation of over 10 per cent.
The savers will now get four percent interest on their deposits up to Rs20,000. Any amount above that will be rewarded to the banks under the PLS rules.
The maximum permissible amount under the enhanced saving account should have been Rs50,000. It is to be hoped there is a further improvement of this scheme.
The minimum amount required for the account is Rs5,000. If the deposit goes below that, a penalty of Rs50 will be charged for each month, but that should be done after informing the depositor so that he can improve the deposits and bring them above Rs5,000. The account holder should not be in the dark about his deposit status.
The enhanced savings account allows for four withdrawals in a month through cheques. The depositor is free to use the ATM card as much as his deposit permits. He can also make any number of deposits free of charge. These are welcome features for the depositors.
It is to be presumed that a saver can open any number of accounts to benefit by the four per cent interest to the deposit of up to Rs20,000.
The number of people per branch is one of the highest in the region which is Rs20,450 per person. The branches are mostly confined to the urban areas. This pattern should be changed in favour of the rural savers and borrowers.. That is imperative to reduce the heavy informal indebtedness.
The new scheme is a result of the arduous labours of the Governor State Bank of Pakistan, Dr. Shamshad Akhtar who has been given best Central Bank Governor Award for 2007. She earlier pleaded to the banks to give less of a raw deal to the small savers.
Instead, the banks came up with schemes for larger rewards for large savers who made long-term deposits. But she continued her persuasion and has ultimately prevailed. The next step should be to raise the maximum amount to Rs40.000 or Rs50,000 which is not a large amount in these days of high inflation.
In fact, many small savers keep their pension funds and other amounts borrowed in their bank accounts and they come to suffer losses if the total exceeds the stipulated amount of Rs20,000.
In Pakistan, people have been keeping money in small savings account more to ensure the security of the capital from theft or through demands made by relations. In such conditions in Japan, the people save their money in their refrigerators instead of having to pay the high bank charges to safeguard their capital.
The small saver is a big loser when the inflation rate is six to eight per cent. When it comes to the common man, he is now more concerned with the high food inflation but the banks are not impressed by such arguments.
In Pakistan. a small saver has to pay a 10 per cent tax on his interest earnings He has to also pay zakat that depositors in other countries don’t pay. As a result what little he gets as interest, is wiped out and he has to pay the banks more out of his pocket.
If zakat is charged, the depositor could be spared the withholding tax payment or vice versa. That doesn’t happen. As a result there has been little growth in real small savings.
The low interest for small depositors has been prevailing when the salaries of the top bankers had risen high and continues to rise. In addition, some of them get large bonuses which is the envy of those less fortunate. So this policy of the top bankers being paid too much and the small depositors too little cannot endure for long.
There is so much talk about Islamic banking solving many of the economic problems of the country but the spirit of Islam does not prevail when it comes to the salary structure in the Islamic banks. What we need is Islamic banking and Islamic economics in letter and spirit and not in the shape of slogans that discredit the present system and do not come up with variable alternatives.
Any significant step that encourages and rewards small savers has to be welcomed in a country with one of the lowest domestic savings rate. The enhanced savings account is a meaningful step to remedy a situation in which small savers were given a raw deal for too long.
