As the Bangladesh Bank rolled out an expansionary monetary policy for FY21, flooding the market with liquidity, banks had less demand for savers’ funds
The net sales of National Savings Certificates reached Tk33,202.65 crore in the July-March period of the current fiscal year — 66.01% higher than the fiscal target — owing to the trend of dropping interest rates in banks.
The government had set a target of borrowing Tk20,000 crore against savings certificates for the 2020-21 fiscal year.
In July-March of FY21, the National Savings Directorate sold certificates worth Tk85,990.5 crore against its principal payments of Tk52,787.5 crore.
As a result, the government’s net borrowing against the savings certificate sales increased to Tk33,202.65 crore in the first nine months of FY21 against its Tk11,202.6 crore borrowing in the same period of the previous year.
In March, the savings directorate sold certificates worth Tk10,762.53 crore against its principal payment of Tk6,871.25 crore.
With the sales and principal payment, net savings certificate sales rose to Tk3,891.28 crore in March 2021 against Tk1,536.7 crore in the same period of the previous year.
At present, most of the banks are collecting deposits at less than 4% interest while the government is offering up to 11.3% interest against the national savings tools.
But the interest rates on deposits were supposed to be higher at this point; to implement the single-digit interest rate on lending, the government had fixed a 6% interest rate on deposits from February last year.
Then the global coronavirus pandemic barged in and upended all plans.
To steer the economy away from a steep downturn, the Bangladesh Bank rolled out a vastly expansionary monetary policy for fiscal year 2020-21 in July last year, which flooded the market with liquidity, meaning the banks had less of a demand for savers’ funds.
At the end of December last year, the excess liquidity in the banking sector stood at Tk204,700 crore, which is the biggest in at least two years, according to data from the Bangladesh Bank.
At the same time, the government too has an incentive to sell as much of its savings certificates that it can — the pandemic has shrunk its revenue stream and also raised its expenditure, so it had to look elsewhere for funds.
Savers are diverting their money to the savings certificates due to the lower yield on bank deposits, said Agrani Bank Chairman Zaid Bakht.
“Banks are offering very low interest against their deposit products owing to the excess liquidity in the banking sector,” said Bakht, also the research director of the Bangladesh Institute of Development Studies (BIDS).
People always consider savings certificates as a safe investment, he added.
Last fiscal year, the government's borrowing from savings certificates dropped 71.1% to Tk14,428.4 crore owing to several regulations attached to lessen the borrowing from high interest-bearing instruments.