KARACHI, Aug 9 : The Ministry of Finance has suspended the sale of National Savings Scheme (NSS) certificates by banks effective June 15, creating problems for NSS investors.
Small investors complain that the Central Directorate of National Savings (CDNS) branches are currently ill-equipped to serve the huge clientage the banking sector has created for the NSS.
As the bank sales of NSS securities have been suspended except for the UAE, and not banned, there is some chance that the administrative decision may be reviewed. The CDNS has initiated programmes to computerize the NSS operations. The intention is to determine the various categories of certificate-holders, including pensioners and widows, the period of maturity of various certificates of different tenors, etc., and to improve the accounting system and service to the customers.
The investors in NSS securities, whose sizable number happens to be old-age pensioners and middle income groups, have to wait for hours at the National Saving centres before being served owing to inadequate manpower and manual operating systems. There is a large section of the impoverished middle class that supplements its incomes with NSS returns to meet monthly family expenses or spending on children’s education or weddings. Unemployment in this group is also increasing.
Often investors visiting these centres for periodic profits or redeeming the NSS certificates are asked to come back on a next date because these CDNS offices do not always have enough cash.
The total stock of NSS certificates is around Rs1 trillion (including Rs100 billion prize bonds), much higher than the time deposits parked in the banking sector that serves it’s customers through a vast networking exceeding 5,300 branches compared to 366 CDNS branches. Before suspension of sales by banks, a vast number of retired personnel could buy and redeem the NSS securities through a vast network of bank branches. Now, only those NSS certificates registered with the banks can be redeemed or periodical profits on them can be encashed.
Borrowers are still allowed to take loans by offering the NSS securities as collateral up to an amount of Rs1 million with the prior approval of the regional directorate of CDNS. A proforma for this purpose has also been provided by the CDNS to the banks, says CDNS officials.
Some retired personnel say instead of taking “rash action”, the finance ministry should have restricted the sales of NSS certificates up to a specified limit per individual and prescribed stiffer monthly reporting of loans secured by the NSS securities.
The official action followed reports that banks had been offering their customers cheap loan packages, with 10 per cent customer-stake. The loan amount was invested in the NSS securities allowing both banks and their customers to profit at the expense of the state. It was adding to the debt servicing cost, while the government was trying to cut costs through such measures as lowering T-bills rates.
Clever bankers used innovative techniques to hide the NSS-linked loans through ingenious structuring of these transactions. Some banks went to the extent of conducting training courses for their employees to handle this “innovative product”.
Initially, in many cases, foreign remittance was received, the proceeds of which was invested by the customer in the NSS and it was followed up by a bank loan up to 90 per cent of the value of NSS certificates pledged as security. Later, the loan proceeds were sent back to the sender of the inward remittance through a money changer. Thus, the banks were channelling excess liquidity to the government at over eight per cent through the NSS certificates. In such cases, what was required was reporting of data as to who was the sender of the remittance, the sender’s link to the borrower and finally how loan proceeds were utilized.
What the authorities overlooked was a rapid rise in public debt through the NSS securities and unexplained rise in bank loans through securities till such time that the issue surfaced in public. It showed ineffective monitoring by both the central bank and the debt office and lack of coordination between different government agencies.
Similarly, the decision to stop NSS securities and their redemption through the bank system failed to take into account that these “fictitious” loans were not availed by millions of small savers who constitute the bulk of NSS certificate holders.