National Savings Schemes: Institutional investment no longer allowed due to exploitation
According to sources, the proposal was submitted before the Federal Cabinet on the 17th of November 2020.
- The Federal Government has decided that institutional investment in national savings schemes may be stopped and discontinued.
- Sources state that the Governor of State Bank of Pakistan (SBP), Dr. Reza Baqir, recommended the major policy change.
- To comply with the policy change, the Central Directorate of National Savings (CDNS) proposed necessary amendments in the national savings schemes’ rules.
The Federal Government has finally decided to discontinue institutional investment in the national savings schemes. Following the initial proposal, the Federal Government had decided to look into imposing a ban on institutional investment in National Savings Schemes (NSS) from the 1st of July 2020. However, the final approval came on the 17th of November after the national saving schemes rule amendments proposal was submitted.
Sources state that the Governor of State Bank of Pakistan (SBP), Dr. Reza Baqir, recommended the major policy change. The Governor of SBP stated:
Currently, institutional funds like Provident, Pension, Gratuity, and Superannuation Funds are allowed to invest in national savings schemes and marketable Government of Pakistan securities (i.e., MTBs and PIBs).
According to sources, Dr. Reza Baqir pointed out that NSSs provide an open option for investors to sell these securities before maturity at a price that is not linked to prevailing market yields. He further said:
These financially sound institutional investors exploit the opportunity by shifting their investments to NSSs, which results in higher interest payments by the GOP. I recommend that institutional investors must not be allowed to invest in NSSs and that NSSs may only be restricted to retail investors.
The Finance Division thoroughly examined the first proposal of the Governor State Bank of Pakistan. After careful assessment, the Finance Division decided:
Institutional investment in national savings schemes may be stopped and discontinued.
To comply with the Finance Division’s decision, the Central Directorate of National Savings (CDNS) proposed necessary amendments in the relevant rules of the following national savings schemes:
- Defense Savings Certificates (DSC) Rules, 1966- proposed amendment in Rules(s), sub-rule 5 of rule (4)
- Regular Income Certificate (RIC) Rules, 1993- proposed amendment in clause (v) of Rule 4
- Special Savings Certificates (SSC) Rules, 1990-proposed amendment in clause (v) of Rule 4
- Short Term Savings Certificates (STSC), Rules, 2008-proposed amendment in clause (d) of Rule 4
- Post Office Savings Bank (POSB), Rules, 1961- proposed amendment in sub-clause (iv) (a) of Rules 5 and sub-clause (iii) of clause (a) of Rules 36-E
- National Saving Deposit Account (NSDA), Rules, 1974-proposed amendment in clause (v) of the sub-Rule 1 of the Rule-2.
Law & Justice Division vetted the draft notifications proposed by the CDNS. The proposed amendments then became subject to the approval of the Federal Cabinet.
According to sources, the rule amendments proposal was submitted before the Federal Cabinet on the 17th of November 2020 in the minutes of the Cabinet Committee on Disposal of Legislative Cases (CCLC). The cabinet, headed by Minister for Law and Justice Farogh Nasim, approved the proposal.
It is pertinent to mention that the Central Directorate of National Savings (CDNS), an attached Department of the Ministry of Finance, deals with the savings schemes and plays a vital role in mobilizing domestic savings and budgetary support and management of inflationary pressures. Many national saving schemes provide necessary social protection to society’s poor and vulnerable segments through higher interest rates against deposits.
It should be noted that CDNS is currently managing ten different national savings schemes. The department caters to the needs of small savers, youth, senior citizens, pensioners, widows, and families of Shuhada.
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