Rs86b withdrawn from saving schemes

Institutional and individual investors have pulled out net Rs86 billion from national saving certificates, schemes and prize bonds during the first nine months (July-March) of the current fiscal year 2021 in the wake of change in government policies and compliance with the Financial Action Task Force’s (FATF) action plan.

Defence Saving Certificates (DSC) and prize bonds remained the two leading saving schemes that saw significant outflows amongst several such schemes, according to the date updated by the State Bank of Pakistan (SBP). “The net investment is in negative due to two major changes in the government policies including disallowing institutions to invest in saving certificates and schemes and discontinuation of prize bonds of high denominations,” A Central Directorate of National Savings (CDNS) official told The Express Tribune on the condition of anonymity.

He maintained that CDNS has continued to receive significant investment in its saving certificates and schemes. However, pull out of investment by institutional investors at maturity of the schemes (in which they had invested earlier) in compliance with the new regulations and encashment of prize bonds have pulled the net investment down in negative. “Institutions are legally bound to withdraw investment at the time of maturity of schemes,” CDNS official added.

The government has discontinued unregistered prize bonds of denominations including Rs40,000, Rs25,000, Rs15,000 and Rs7,500 bond over the last two years. “The total investment in prize bonds stood close to Rs900 billion. Almost two-third of the investment was made in higher denomination (unregistered) prize bonds, which the government has now discontinued,” the official said. It was learnt that the government discontinued prize bonds to check corruption and the CDNS updated investment policy in compliance with FATF’s anti-money laundering (AML) and combating financing of terrorism’s (CFT) rules.

Earlier, the Paris-based international financial watchdog added Pakistan on its grey list in 2018 due to suspected money laundering and terror financing from the country. However, Pakistan achieved great success in implementing almost all the 27 FATF conventions to control money laundering and terror financing over the past two years. The country is expected to return to the white list soon. The breakdown suggests investors have pulled out a net Rs74.2 billion from prize bonds during July-March FY2021. They have withdrawn Rs7.27 billion from Defence Saving Certificates and another Rs26 billion from other saving certificates and schemes during the period under review.

However, net investment in Regular Income Certificates (RIC) stood positive at Rs16.24 billion. Similarly, Special Savings Certificates (SSC) attracted a net investment around Rs5 billion, according to the central bank. CDNS mobilised investment worth Rs371 billion through saving schemes and certificates in the previous fiscal year ended June 30, 2020.

Rate of profit

Earlier this week, the Ministry of Finance modified the rate of profit on different saving certificates and schemes in line with the benchmark government debt securities like three to 12-month treasury bills and three to 10-year Pakistan Investment Bonds (PIBs). CDNS reinvests the funds received from retail investors into treasury bills and PIBs and award profit to retail investors on the income to be earned from the government debt securities.

The new rate of profit on Shuhada’s Family Welfare Accounts and Pensioners’ Benefit Accounts has been revised down to 11.04% with effect from May 19, 2021, compared to 11.52% earlier. The rate of profit on Bahbood Savings Certificates has been slashed to 11.28% from 11.52%. The new rate of profit for Defence Savings Certificates has been reduced to 7.68% from 9.52%. To recall, the rate of return on PIBs have been on a decline for some time. For example, the cut-off yield (rate of profit) on three-year PIBs decreased by 57 basis points in the last auction of the government paper held on May 6.