WITH the increase in profit on Pakistan Investment Bonds (PIB), the Central Directorate of National Savings (CDNS) has decided to offer additional average one per cent profit on all its products in order to provide some benefits to its depositors.

The CDNS has sent a formal proposal to the finance ministry for approval and the issue is expected to be settled soon. However, commercial banks are opposing the move and have approached the central bank to look into the issue.

While the State Bank has allowed commercial banks to earn unchecked profit, the latter are reluctant to permit the government securities to extend any increase in the rate of interest for their depositors. Commercial banks have informed the officials of central bank that the market trend would be disturbed if the CDNS is allowed to revise its interest rate upward.

"We have proposed certain increase in the interest rate of our products, and hopefully a decision in this regard will be taken by the government within one month,” disclosed Director General of CDNS Ahmad Owais Pirzada. He defended the CDNS’ decision to offer additional profit to its depositors and said that like banks, government securities should also have the right to revise their interest rates from time to time to ensure healthy competition in the market.

Some officials in the finance ministry have supported the CDNS, which will be shortly converted to Pakistan Savings, to revise its interest rates upward. However, they were not sure what would happen as the banks were applying all sorts of pressure to stop the directorate from getting its decision implemented.

They maintained that banks were making 100 per cent profit for the last many years and had earned a record profit of over Rs90 billion in 2006 which was 104 per cent. Under these circumstances, the government should allow the CDNS to revise its interest rates upward which currently averaged about 11 per cent.

"There is a need to review the overall strategy to check the exploitation of the commercial banks who were indulging in illegal activities like offering luxury cars and other benefits to their chief executives and senior officials,” said an official of the finance ministry. While, he favours approving the recommendations of the CDNS to allow additional profits to its depositors, he did not think the government would reject the views of the commercial banks and the central bank over the issue.

Pakistan is among the few countries in the world which has the most lucrative banking returns, he said. These banks did not want the oppressed and hard pressed segments of the society to get some benefit through various national saving schemes of the CDNS, he added.

He was of the view that the central bank should convene a meeting of the banks and other government securities including the CDNS to discuss their rate of profit for next two years, five years or even for 10 years.

Another official said that although the government was not supposed to indulge and try to control the market by implementing its decisions and directives, it needed to play some role to remove distortions in the market to avoid exploitation of the traders and banks in terms of checking inflation.

"Unless the government asks all the market players to enforce their new strategy, banks will continue minting more and more profits and small depositors of government securities would not be able to earn genuine profits,” the official said. He said there was a need to ensure conformity so that all the market players could have a level playing field.

Asked about the position of the CDNS, Mr Pirzada said this organisation had raised over Rs21 billion in the first half of the current financial year and that its products were more economical as compared to other fund-raising sources.

"When we compare the NSS source with foreign borrowing, the non-banking is a better option, therefore, the NSS source should not only be strengthened but its rates should not be less than any compatible products available in the market, he said.

“This will not only be in public interest but will also be beneficial for the six million plus people having their savings in NSS,” the CDNS Director General said.

The World Bank and the Asian Development Bank are believed to have offered loans to the CDNS for its restructuring and improvement in corporate functioning, but the CDNS has declined the offer saying it could run its financial affairs without foreign assistance.

The officials of the ADB met Secretary Finance Naveed Ahsan last week and discussed with him plans to restructure the CDNS. They also offered loan on low mark up but the CDNS officials declined the offer saying they were comfortable with their present financial position.

The ADB officials, it is believed, also inquired as to why the CDNS had not been converted into Pakistan Savings despite the approval of the idea by the prime minister about a year ago, they said the file was still lying in the finance ministry for perusal.

The prime minister had also approved conversion of the Monopoly Control Authority (MCA) into a competition commission which too was being opposed by the law minister.

Generally, it is said that the affairs of the ministry of finance were not getting adequate attention as the decision making did not rest with one official. There is a prime minister's advisor on finance and then a state minister for finance, a secretary general and a finance secretary.

"Among the four people, nobody knows who is calling shorts but in the process the work of the ministry is suffering", said an insider.