The government has raised the rates of return on all existing savings tools by as much as 2.64 per cent with effect from March 01 next to help lower the government's borrowing from the banking system, a senior official in the Ministry of Finance (MoF) said.

The Internal Resources Division (IRD) under the MoF on Thursday issued the circular to this effect. Finance Minister AMA Muhith approved the upward adjustment of rates of returns on different savings instruments on Wednesday last, sources said.

The rates of return on all five categories of saving instruments have been revised. These are -- 5-year Sanchayapatra, three-monthly Sanchayapatra, Pensioner Sanchayapatra, Poribar Sanchayapatra and Postal Savings Bank (fixed deposit).

However, the current practice about deduction of five per cent tax at source and the investment limit will remain unchanged. The current savings instrument holders, regardless of categories, will not get the facility of enhanced rate of return, a high official in the IRD said.

According to the circular of IRD, signed by its Secretary Dr. Nasir Uddin Ahmed, the rate return on five-year Sanchayapatra has been revised to 13.19 per cent including 0.99 per cent Social Security Premium(SSP) from existing 11.55 per cent.

The rates in case of getting returns before the expiry of five-year period for five-year Sanchayapatra have also been increased to a

level between 9.20 per cent and 11.45 per cent compared to the current rates ranging between 8.0 per cent and 10.25 per cent, the circular said.

The rate of return for three monthly Sanchayapatra (3-year) has been raised to 12.59 per cent from existing 10.78 per cent. The rates in case of getting returns before the expiry of three-year period for three monthly-return-giving Sanchayapatra have also been increased between 9.80 per cent and 10.80 per cent compared to the existing rates available from 8.40 per cent to 9.40 per cent.

A three-monthly Sanchayapatra holder will get Tk 3147.50 after the new rate of return comes into effect, which is now Tk 2695. The deduction of a five per cent tax at source is applicable in both cases, an IRD official said.

The rate of return for Pensioner Sanchayapatra has been revised to 13.19 per cent from existing 11.81 per cent. The new rate will be applicable after five-year maturity period, the circular said.

The rates in case of getting the return before the expiry of five-year period for Pensioner Sanchayapatra have also been increased to a level between 9.20 per cent and 11.45 per cent compared to the current rates ranging between 8.0per cent and 10.25 per cent, the circular further said.

The rate of return for Poribar Sanchayapatra has been raised to 13.45 per cent from current 12.07 per cent. The rates will be between 9.20 per cent and 11.45 per cent in case the encashment of the tool is made before the expiry of the five-year term.

The rate of return for Postal Savings Bank (fixed deposit) has been increased from current 11.08 per cent to 13.24 per cent, the circular said.

Officials in the MoF said following the adjustment of rates of return, the budgetary cost of the government will be increased significantly but its level of borrowing form the banking system will decline strikingly.

"We cannot afford a huge level of borrowings from the banking system by the government, target of which has already exceeded during the first four months of the current fiscal year," a MoF official told the FE on Saturday.

"The middle income groups in the society will be benefited by the latest decision of the government," he added.

Recently, the commercial banks have raised their interest rates on bank deposits and many small savers found it profitable to transfer their fund from savings tools to banks resulting in poor sale of such instruments, which are the main avenue for non-bank borrowings by the government.

The government fixed the net selling target of the savings certificates at Tk 60 billion for fiscal year (FY) 2011-2012. However, the sale during the first six months of the current fiscal year from savings certificates was, in value terms, only Tk 3.34 billion, according to the data of the government.

Presently, the highest limit of investment in savings instrument is Tk 3.0 million for a single individual and Tk 6.0 million under joint names. This limit is applicable for all available tools other than Poribar Sanchayapatra. The highest limit for Poribar Sanchayapatra is Tk 4.5 million.

"The existing limit of investment will remain unchanged," an IRD official said.

Financial Express/Bangladesh/ 26th Feb 2012