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Institutional investment in savings schemes banned

July 01, 2020

ISLAMABAD: The government on Tuesday banned institutional investments in national savings schemes (NSS) to redirect them to other parts of the financial sector.

Now, the Central Directorate of National Savings could not attract investments from employees-related funds and non-profit organisations.

“In the light of decision of the committee constituted to finalise plan for elimination of institutional investors from NSS products and recommendation of State Bank of Pakistan, the competent authority has been pleased to direct that institutional investment in national savings schemes shall be discontinued with effect from 1 July, 2020,” the finance division said in statement.

CDNS former director general Zafar Sheikh disliked the decision. “The NSS is meant to cater the requirements of employees-related funds and is providing profits to them,” said Sheikh. “The government has taken this measure to deprive pension funds from getting more profits.”

CDNS has investment portfolio of Rs4 trillion and out of that around Rs500 billion is from funds, such as Employees Old-Age Benefits Institution and non-profit organisations.

Earlier, the government also slapped ban on institutional investments in saving schemes to avert losses concerning high rate of returns to investors. Later the ban was lifted after bringing the rate of return on par with open market. Institutions were then able to invest in all saving schemes except the pensioners’ benefit account and Bahbood savings certificates.

Considering back-to-back reduction in rate of returns on saving certificates, the decision makes no sense. The rates have been revised down due to the declining secondary market yields on long-term Pakistan Investment Bonds and Treasury-bills in recent auctions. The central bank slashed its key policy rate by cumulative 625 basis points to 7 percent since March.

Informed sources said there has always been a lobby working from the banking sector, which said the NSS was creating distortions into the market so there was need to impose ban on institutional investment. “Now, the banking sector has succeeded to exclude NSS from attracting these funds after undertaking hectic lobbying for years,” a source said. “Now, the banks will attract these funds so they will invest more into T-bills and PIBs.”

Nineteen percent of domestic debt consists of NSS, while these deposits are equal to 28 percent of total deposit of banks.

Around 33 percent of CDNS deposits are in welfare schemes. Currently, CDNS manages portfolio of more than seven million investors. NSS provides risk-free and competitive avenue to all segments of the society, especially senior citizens, pensioners, widows, physically challenged persons, and family members of Shuhada. It also provides a non-inflationary and cost effective borrowing to the government to bridge the overall fiscal deficit which ultimately reduces dependency on external borrowing.