The net sales of national savings certificates in July-May of the just concluded fiscal year (2018-2019) exceeded the government’s total borrowing through the high-cost instruments in the entire FY18, creating a cash crisis in the country’ banking sector.
As per the latest central bank data, the net NSCs sales stood at Tk 46,731.25 crore in the first eleven months of FY19, up Tk 200.95 crore on Tk 46,530.3 crore in FY18.
On the other hand, the government’s net fund collection through NSC sales in July-May of FY19 was Tk 3,367.49 crore or 7.77 per cent higher considering the Tk 43,363.76 crore net NSC sales in the same period in the previous fiscal year.
High interest rates on the NSCs compared with that on the existing deposit rates in the banks were the major reason for the buying spree of the savings instruments, bankers said.
Deposit rates in almost all the banks are hovering at around 3 to 8 per cent in different periods of time, according to Bangladesh Bank data.
However, the rates offered by the NSCs are between 11.04 per cent and 11.76 per cent, helping the government to lure investments to the tools.
Besides the high interest rate on NSCs, the government has been offering tax rebate against the investments in NSCs, encouraging savers to purchase the instruments.
According to the Income Tax Ordinance-1984, an individual taxpayer can get income tax rebate at the rate ranging from 10 per cent to 15 per cent by making investment in and donation to 23 sectors including NSCs, deposit pension schemes in banks, capital market and paying premium for life insurance.
A taxpayer can claim the rebate on investment of up to 25 per cent of his or her total income excluding tax-exempted income and income enjoying reduced rate or Tk 1.50 crore, or actual investment, whichever is lower.
The National Board of Revenue offers tax rebate at the rate of 15 per cent if the eligible amount of investment remains below Tk 10 lakh and the rate of rebate becomes 10-12 per cent if eligible investment amount is higher than Tk 10 lakh.
In these contexts, the government has initiated a move to review the existing income tax rebate against investments in NSCs and to rationalise the scheme.
Under the move, the Cash Debt Management Committee of the finance ministry in May this year has made a decision to review the policy and asked the NBR to implement the decision.
In FY20 budget, the government refrained from reducing the interest rates against investments in NSCs but imposed additional 5 per cent taxes on the interest income from NSCs, taking the total tax to 10 per cent from 5 per cent.
At the end of May this year, the outstanding sales of NSCs reached Tk 2,84,497.77 crore from Tk 2,37,766.52 crore at the end of June last year.
BB officials said that the high purchase of NSCs by individuals and entities had become a major concern for the banking sector and the liquidity crisis in the banks would not be solved until the interest rates on NSCs were reduced.
In July this year, the BB warned entities or organisations not to misuse the investment scope in the national savings certificates from institutional funds.
The central bank issued the instruction as it found huge investments in NSCs by different entities in the name of provident funds.
Due to the increased fund flow to the NSCs in last few years, deposit growth in the banking sector slowed down to 9.8 per cent in 2018. The growth was 10.6 per cent growth a year ago and 13.3 per cent four years ago.