KARACHI: Central Directorate of National Savings Organization (CDNS) will float Rs 25,000 prize bond from February 1, 2012 with the aim to promote public savings in the country on one side and encourage non-bank borrowings to control inflation.
Director general CDNS Zafar Shaikh told APP Monday that there was a need for a bond with the denomination of Rs 25,000 to cater to market appetite in the country. We have bonds of almost all denominations, but there was a gap of one bond of Rs 25,000 in between Rs 15,000 and Rs 40,000, he added.
"Now we are issuing this bond with the aim to promote public savings which is the main demand of the national economy. If you can encourage saving in the country you can remove economic imbalances", he observed.
Shaikh said that mobilizing money for the government through bonds is non-banking borrowing which can effectively control inflation in the country.
He pointed out that the first prize on Rs 25,000 bond will be Rs 50 million, while three more prizes of Rs 15 million each will be given to three lucky winners followed by 1,696 prizes of Rs 312,000 each.
Senior analyst of KASB Securities Imtiaz Gadar said that the reason that CDNS continues to introduce innovative products to attract savers is to ease the pressure on "government borrowing" from banks.
"In the recent past the government has been relying excessively on bank borrowing to fulfill its funding needs. This results in "crowding out" of private sector flows, exerts upward pressure on interest rates and also hurts the transmission mechanism of the monetary policy", he noted.
He said that fund mobilization through bonds will leave sufficient funds with the banks to cater to private sector's credit needs for productive purposes.
He said that prize bonds are an alternate investment avenue offered by CDNS and their importance is likely to increase in the near term given the reduced rates on National Savings Schemes.
Gadar noted that while prize bonds also have an underlying interest rate mechanism (ranging between 5 to 6 percent), the chance of asymmetric payout attracts interest from investors or savers.
Under prize bonds, the interest is not paid to everyone equally but is distributed based on balloting and can result in exponential payouts for some of the lucky investors/savers, he opined.
Currently the bonds are available in denominations of Rs.200, Rs.750, Rs.1,500, Rs.7,500, Rs.15,000 and Rs.40,000 and the CDNS has come out with this new denomination to attract more investors.
Gadar said that the government can mobilize funds at much lower rates which are almost half of the bank lending rates.
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