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KARACHI, July 1: The government has cut the rates of return on national savings schemes by up to 2.5 per cent on maturity basis but on premature withdrawals the rate cut is much higher — in some cases more than 4.5 per cent.
The Finance Division has issued the gazette notification about the new rates of return on defence saving certificates (DSCs); special saving certificates (SSCs); mahana amdani accounts and post office saving accounts.
DSCs: The notification gives a cashflow chart of the earnings on DSCs of different denominations up to 10 years. An analysis of the chart reveals that people buying DSCs between July-December 2002 would earn an annualized return of 11.6 per cent on completion of 10 years. Earlier, they were getting 14.1 per cent return on 10-year DSCs.
But if people encash the 10-year DSCs after the completion of three years they would now get a return of 7.4 per cent and if the encashment is made after five years then the return would be 8.30 per cent. On 10-year DSCs bought up to June 30, 2002, the return on three-year and five-year withdrawal was much higher — 11.3 per cent and 12.9 per cent to be exact. This means the return that people would get on three-year and five-year withdrawals of 10-year DSCs would be lower by 3.90 per cent and 4.6 per cent respectively.
SSCs: A study of the cashflow chart of the new rates of return on three-year special saving certificates shows that on SSCs purchased between July-December 2002 people would get an annualized return of 10.7 per cent. Previously, they were getting a return of 12.7 per cent.
MAHANA AMDANI ACCOUNTS: The notification says that maturity period of Mahana Amdani Accounts between July-December 2002 has been extended from six to seven years. That in itself would effectively lower the return on these accounts but the exact reduction in the rate of return is difficult to quantify. The notification says that on completion of seven years, holders of these accounts would get a profit of 100 rupees on an investment of Rs100. Or they would simply get an annualized return of 11.6 per cent.
POST OFFICE SAVING ACCOUNTS: The notification says that the people making investment in Post Office Saving Accounts between July-December this year would get an annualized return of 11.3 per cent after the completion of three years. They would get 10.3 per cent return for each of the first five six-month periods.
Earlier, the return was 13.20 per cent on the completion of three years and 12.20 per cent for each of the first five six- month periods.
Thus the return on Post Office Saving Accounts has fallen by 1.9 per cent.
Whereas the reduction in the NSS rates is sure to hurt the savers, particularly the small ones including retired people and senior citizens, bankers say it would give them room to cut their lending rates.
They say the cut in NSS rates has paved the way for the State Bank to lower its discount rate or the rate at which the SBP makes short-term lending to the banks against government securities.
The SBP statistics show that at the end of March, 2002, Rs278 billion worth of defence saving certificates were in circulation whereas Rs237 billion was outstanding in Special saving certificates and accounts.
The NSS rates have been reduced on the insistence of the IMF whose officials believe that higher NSS rates creates distortion in the overall interest rates structure.
Bankers say it leaves them unable to slash their deposit rates without which they cannot reduce their lending rates. They say that higher NSS rates also make the task of deposit mobilization very difficult.
