THE differences within the ministry of finance and the central bank are blocking the announcement of 0.5 to one per cent increase in the profit rates of all the savings schemes as proposed by the Central Directorate of National Savings (CDNS).

The CDNS officials have put up a fresh summary with the ministry of finance last month to have 0.5 to one per cent increase in rates of profit of its various schemes. The directorate is also said to have called for early corporatisation of the organisation (turning CDNS into "Pakistan Savings") which in principle was approved by the prime minister about one and a half years ago.

The higher authorities are now expected to take a decision within next few days whether or not to allow the CDNS to offer increased rate of return to its clients. Most officials of the finance ministry and the State Bank are said to have opposed any increase in rate of profit on various savings products.

The World Bank, the IMF and the Asian Development Bank are also opposing any upward revision. They have asked the CDNS to take a soft loan from donor agencies instead of seeking revision in the interest rate for improving its financial health.

But interestingly, the CDNS has refused to take any loan by saying it can run its financial affairs without any foreign funding. The issue did not go well with the ADB officials who are in town these days and are offering the CDNS $100 million loan.

The CDNS is insisting to offer market-based profit rates to its customers like other banks on three to five years maturity period. It said that banks were earning unprecedented profits but were opposing other organisations like the CDNS to follow the same because of their vested interest.

Generally, it is said that commercial banks are opposing the idea of the CDNS offering new profit rate to its customers. Nevertheless, there are still some people in the finance ministry arguing with the prime minister that this is high time to revise the CDNS profit rates upward, and that the issue is causing frustration among small investors.

The CDNS officials maintain that till 1999, they were offering up to 18 per cent interest particularly on defence savings products which had been reduced to 10 per cent on all regular schemes. The organisation is offering interest at the rate of 11.45 per cent to widows only as a special case.

“This issue of increase in the rate of interest will be taken up shortly on the fresh request of the CDNS, although the central bank continues to oppose the idea", a source in the finance ministry said. He said that commercial banks were using the influence of the State Bank to ensure that the CDNS was not allowed to increase profit on any of its schemes.

Similarly, the prime minister's summary on the corporatisation of the CDNS was still pending. He had sought opinion of the concerned officials of the finance ministry on the issue last week. The issue of converting the CDNS into Pakistan Savings was brought back from the Pakistan Printing Press at the eleventh hour by the officials of the ministry of finance recently and this is reportedly causing problems in achieving the goals and targets of the organisation.

According to the latest figures provided with the ministry of finance and also shared with Dawn, the CDNS earned a gross revenue of Rs400 billion by the end of May 2007. Its net revenue last month touched Rs55 billion which was termed wonderful despite encashment.

However, in spite of making efforts, human resource department of the CDNS continues to show poor performance and is facing hardships particularly in hiring professionals from the market.

Likewise, automation in the department is being delayed due to resource constraints and inadequate administrative and operational powers of the department. "It was the dream of the prime minister to have the Pakistan Savings which is being opposed by the people within the ministry", a source in the finance ministry said.

He aid that six million beneficiaries of the CDNS could easily be expanded to 18 million provided it was corporatised as had been originally planned and approved by the prime minister.

"It is not known why some people are opposing the conversion of CDNS into Pakistan Savings as finance secretary, additional finance secretary and the chief executive of the proposed body will be members of the new board of directors, besides three other members from the private sector", another source said. This would be a balanced board which can look after the interest of the government and the investors, he said.

Earlier this year, the finance ministry had decided to convert the CDNS into an autonomous Pakistan Savings, to be formally approved by the federal cabinet before June this year with a view to expanding its functions and offering increased salaries to its employees.

The complete restructuring of CDNS had also been proposed to be achieved by June 30 for which consultants of the organisation - M/s Sadat Haider Murshad of Karachi were asked to put up their plan. However, the matter is being delayed under one pretext or the other.

It is said that once the CDNS is converted into an autonomous body, its affairs would be supervised by a board of directors to be headed by secretary finance.

At present, the CDNS is marketing only government securities through a network of some 320 branches. With significant reduction in return on fixed securities brought about by the market conditions, small savers are feeling frustrated as they have no access to those securities that offer better return.

Under the proposed restructuring programme, all the national savings centres across Pakistan would be upgraded through a detailed automation programme. The automation has become necessary as the number of transactions have increased manifold, and it was difficult to achieve the desired results through manual handling of things.

The ongoing pensioners and welfare schemes of the organisation will be further improved, a source said. He pointed out some new schemes were also expected to be introduced.