The net sales of National Savings Certificates reached Tk 33,202.65 crore in the July-March period of the current fiscal year – 66.01% higher than the target – due to the trend of dropping interest rates in banks. The government had set a target of borrowing Tk 20,000 crore against savings certificates for the 2020-21 fiscal year. In July-March of FY21, the National Savings Directorate sold certificates worth Tk 85,990.5 crore against its principal payments of Tk 52,787.5 crore. In March, the savings directorate sold certificates worth Tk 10,762.53 crore against its principal payment of Tk 6,871.25 crore.
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 the 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 Tk 204,700 crore, which is the biggest in at least two years. 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. Banks are offering very low interest against their deposit products owing to the excess liquidity in the banking sector. Lower profit on bank deposit make people to buy saving certificates for which the government is paying higher interest. Idle money in the banking sector reflects a lack demand to invest the same in business activities and in turn forcing the banks to offer lower interest rates. A prudent fiscal policy is needed to overcome this situation.