NSS inflows jump 93 percent in July-February

KARACHI: Investors have poured Rs230 billion into fixed income saving instruments in the first seven months of current fiscal year, easily surpassing inflows of Rs120 billion witnessed during the same period last year, central bank data showed on Friday.
National Saving Schemes (NSS) deposits rose by 92.54 percent in July-January period of fiscal 2014/15, indicating a major shift in investors’ behavior as they put their money in risk-free and higher return fixed instruments, analysts said.
Bankers and analysts said savers are not relying on bank deposits as they are earning relatively higher profit rates on other instruments, such as NSS, Pakistan Investment Bonds (PIBs) and mutual funds.
“A transformation of the savings landscape during the current fiscal year is attributed to banks’ unwillingness to lock-in their funds in short-term expensive deposits following the declining trend in the overall interest rates and rise in cost of doing business,” said a banker at local bank.
“The financial intermediaries have no better deals to entice savers so far.”
From February 1, 2015, the minimum profit rate on bank saving accounts is 5.5 percent. However, they offer maximum 8.25 percent profit on long-term deposits.
Nevertheless, the government offers higher return on different NSS saving products. It offers 9.50 and 8.20 percent return on defence and special saving certificates, 8.9 on regular income and 11.28 on pension benefits, effective from February 2015.
Banks foresee a substantial cut in the discount rate in the upcoming monetary policy to be announced later this month on soft inflation numbers. Therefore, they are parking their money into the short-term treasury papers and long-term bonds. PIBs are offering 9 percent returns on five- and 10-year tenures.
Falling interest rates is a double-edge sword for banks as they have to mobilise their deposits and maintain spreads. Analysts believe NSS will continue to attract deposits. On the other hand, due to declining interest rates banks are not keen to compete with NSS for deposits.
“NSS is offering unique features that provide higher return than the banking sector and also provides protection when interest rate goes up,” said Muzzammil Aslam, director of Emerging Economics Research.
Eman Khan from Aerari, an application that tracks financial markets said higher participation in NSS and bonds underlines the premium on these against bank deposits. “Expansionary monetary policy not only discourages bank deposits but also results in capital gains on PIBs,” khan said. “The bearish monetary policy and inflation outlook adds support to the continued investment in NSS but the graph may become flatter now.”