Banks to remain on the losing side

Banks will not be able to reap benefits from the increased rate of tax on interests from national savings certificates (NSCs) because the gap between interest rates offered by NSCs and banks is still high, economists say.

As long-term investment in banks is risky due to high default loans and the banks also make no suitable short-term deposit offers, NSCs are the only hope for the middle-income group even if the tax rate has been increased to 10 percent from 5 percent, they also opine.

“As the interest on savings certificates is much higher than that on bank deposits, the banks will not get benefit from the tax hike. Only the government will be benefitted with a slight increase in its revenue collection,” said Ahsan H Mansur, executive director of the Policy Research Institute.

According to Shamsunnahar Begum, director general of the Directorate of National Savings, the sale of savings tools will not decrease even if the tax on earnings from NSCs has been hiked.

Savings certificates offer both long-term and short-term investments, with interest rates from 9 percent to 12 percent which are higher than interests offered against bank deposits. As a result, investors will still feel comfortable to invest in NSCs, she said.

At present, most of the banks are making various offers to increase their deposits. Several banks are also offering higher interest rates than the government-fixed 6 percent. However, the offers are available only for long-term deposits.

Kohinoor Begum, a housemaker from the capital’s Wari, last month encashed her savings certificates worth Tk5 lakh before maturity, in fear of imposition of an increased tax on her earnings from the tools.

She also got interests at a rate of 10.5 percent as her five-year-tenure savings certificates completed three years.

She encashed the certificates upon learning that some banks were offering double benefit schemes. Later, she also took an initiative to invest the money in a bank at an interest rate of 10.4 percent.

But after making a comparison between earnings from savings certificates and bank deposit schemes, she understood that NSCs would be more profitable for her.

She therefore moved back from the bank’s double benefit scheme and decided to buy savings certificates again.

Syed Mahbubur Rahman, chairman of Association of Bankers Bangladesh and managing director of Dhaka Bank, said, “Even though some banks may be announcing higher interests in a bid to collect more deposits, the interests on bank deposits, however, are lower than that on savings certificates.

If the interest rate on NSCs is not lowered, customers will not be attracted to any of the banking schemes, he added.

According to the data of the Directorate of National Savings, the government at present sells 17 types of savings instruments and bonds.

And, it also has been deducting 10 percent tax at source on the interest. Before July 1 the rate was 5 percent.

In the first 10 months of the just concluded financial year, savings certificates worth Tk44,280 crore were sold, exceeding the government target by over 170 percent.