KARACHI, Oct 25: If you are going to buy some special deposit certificates of the PICIC commercial bank introduced for widows/ orphans and retired civil and armed forces personnel and senior citizens you need to know two things: First, the 12 per cent rate of return as announced by the bank may change as the deposits being raised through these certificates are based on profit and loss basis and are thus subject to change. Second, even if the rate remains unchanged you will get 7.5-10 per cent profit if you encash the certificates before five years. Sources in PICIC Commercial Bank say these certificates cannot be encashed before 90 days from the date of issuance in any case.
The certificate holders will get 7.5 per cent profit if they encash the certificates after three months and over but less than six months; 8.5 per cent profit on encashment of certificates in six months and over but less than one year and 9.5 per cent on encashment in one year and over but less than three years. They will get 10 per cent profit if they encash the certificates in three years and over but less than five years.
The bank will also deduct withholding tax at the prescribed rate (currently 10 per cent of the profit) at the time of profit payment. The bank officials say they have requested the Central Board of Revenue to waive withholding tax on these certificates but a response is still awaited.
The holders of the certificates will also have to pay Zakat at the rate of 2.5 per cent on the face value of these certificates. Zakat will be deducted at the date of profit payment/encashment —whichever is earlier. The holders will need not pay Zakat if they produce certificates of exemption from Zakat under the rules.
But there is one thing that makes the PICIC special deposit certificates attractive: you can borrow from the bank up to 80 per cent of the money invested in these certificates. Managing Director of PICIC—the parent body of PICIC Commercial Bank— Mohammad Ali Khoja told Dawn that the mark-up rate on borrowing against these certificates would be 12 per cent.
He said that PICIC Commercial Bank had launched the special deposit scheme to provide an attractive source of investment for the white-collared small investors. “The intention is not to earn anything.” Does it mean the bank will suffer losses? “Certainly not. We plan to accept only Rs200 million worth of such deposits and have already hedged our position by buying some TFCs that are yielding 13 percent return.”
That sounds practical. Simple arithmetic shows that if the PICIC Commercial Bank pays Rs1000 per month on certificates of Rs100,000 it will actually be paying 12.5 per cent return to its depositors. Now if the bank has placed Rs200 million in the TFCs at 13 per cent and it is going to accept investment in its special deposits only up to Rs200 million it will not be making any loss.
The sources in the bank said the bank has so far sold less than Rs50 million worth of special deposit certificates. The bank intends to sell these certificates up to December 30, 2002.
PICIC Commercial Bank recently launched these certificates for widows/orphans and retired and armed forces personnel and senior citizens at an indicative return of 12 per cent. People can invest a minimum of Rs50,000 per person and a maximum of Rs300,000 in these certificates. A family can invest up to Rs half a million. The profit is payable every month at an indicative rate of Rs1000 per Rs100,000.