AT a crowded National Savings Centre office in Karachi — filled mostly with senior citizens waiting for their turn at the payment counter — it was business as usual last week.

This was despite a drastic cut in the rate of return on September 12 to decades-low levels following an easing of monetary policy as inflation decelerates in the country.

The State Bank of Pakistan chopped the policy interest rate again for the next two months by 50 basis points to 6pc, resulting in a drop of 3.5pc over the last 10 months.

The profit rates on National Savings Schemes (NSS) are linked to the yield on Pakistan Investment Bonds, which have been moving down consistently with the downward revision of the policy rate. The government, therefore, reduced the rate of return on various saving schemes.

Some NSS branch managers said a few of their old clients were choosing not to reinvest. But they insisted the depositors’ base was expanding, though the pace may have slowed down

According to a senior official in the Central Directorate of National Savings (CDNS), the average rates of return on schemes of three-year maturity is down to 7.63pc, five-year 8.52pc, 10-year 9.15pc and Behbud and pensioner schemes to 11.04pc.

Some NSS branch managers interviewed in Karachi and Lahore said a few of their old clients were choosing not to reinvest. But they insisted that the depositors’ base was expanding even though the pace may have slowed down.

“The fall in the pace of new investment is not proportional to the fall in the rate of profit on schemes of different maturities. The mobilisation has been consistently increasing in government schemes,” said Adnan Ahmed, an official at a NSS office in Karachi.

“Many people who invested in three-year Special Savings Certificates in 2012 when six-monthly returns were almost double of what they are now are liquidating their investment at maturity, as they find the low profit not worth blocking their savings for the next three years,” another NSC office manager in Lahore told this scribe over phone.

He was not sure where would people park the funds withdrawn from the national schemes.

Meanwhile, senior CDNS officials in Islamabad dismissed the impression of major withdrawals from the government schemes, which are perceived to be the most dependable risk-free investment option by the middle class.

“We mobilised Rs45bn in new deposits during July and August in what you term ‘unattractive schemes’. As for withdrawals, yes there are some but they are common at this time of the year with Hajj and Eid-ul-Azha approaching,” said Zaheer Abbas, a CDNS officer. He was reluctant to admit that the falling rates were disincentivising potential investors.

“Please scan through the data available on the SBP’s website instead of basing your perception on hearsay,” he advised.

According to official data, savings mobilised through NSS in the last fiscal amounted to Rs336.1bn — up an estimated 62.4pc over the preceding year.

“We are their captive client base. Retail investors have become more risk-averse after hearing about stories of cooperative societies and other such scams where ordinary people lost their life savings in hopes of high returns. In the absence of other credible options, they have no choice but to accept whatever the government offers. At least the principal amount is safe in the government’s custody,” said Ameena, a single parent who deposited her share of inheritance money in a monthly return scheme to supplement her family income.

Mohammad Sohail, CEO of Topline Securities, regretted the unavailability of data regarding investment in government savings schemes by institutions and individuals. He believed this was crucial to assess the trend. But on the basis of market information, he tended to endorse the view of the CDNS.

“There is a possibility that a portion of private capital might be flowing to the property sector. But it is hard to project the extent of such investment in the absence of credible data. Besides, property investment is not uniform across all regions of Pakistan, as there are many factors at play,” he said.

“There was an uptick in the currency market a month back when Hajj operators were active, but despite expectations of a further weakening of the rupee, business is said to be currently dull in the money changers’ orbit,” said a mutual fund operator.

A senior finance ministry official told Dawn over phone from Islamabad that it would be misplaced to assume that the government is indifferent to the outcome of falling profit rate on its savings schemes.

“We monitor investors’ sentiments very closely as it is a major source of public borrowing. The minor upward revision of 0.9pc in August for NSS was made to calm the people’s rising anxiety over the depressed rates,” he admitted.

“Yes, savers need the comfort of the government’s guarantee for their hard earned money, but the cash-starved state also depends on inflows from people to make its own ends meet,” he said. “It is not a matter of choice. The government can’t afford to lose the dependable base of NSS investors,” he said.

He attributed the investors’ anxiety to their lack of understanding of money matters. “They do not understand the difference between the real and the nominal rates of return. Currently, the nominal rate of return is low but the real rate is the same, if not higher, because of the lower inflation rate,” he pointed out.

Published in Dawn, Business & Finance weekly, September 21st, 2015

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