FEDERAL OMBUDSMAN OF PAKISTAN

A STUDY OF

ORGANIZATION, ROLE, SYSTEMS, PROCEDURES

AND CAUSES OF MAL-ADMINISTRATION AND

MAL-FUNCTIONING OF CENTRAL DIRECTORATE

OF NATIONAL SAVINGS MINISTRY OF FINANCE,

GOVERNMENT OF PAKISTAN

WAFAQI MOHTASIB (OMBUDSMAN)’S SECRETARIAT

36-Constituion Avenue, Islamabad – Pakistan

Ph: +92-51-9213886-7, Fax: +921-51-9217224

www.ombudsman.gov.pk

Table of Contents

Chapters Page No.

Executive Summary

1-40

Chapter 1 Introduction

i. Establishment of Wafaqi Mohtasib Order 1983

ii. Terms of Reference

Chapter 2 Methodology 44

Chapter 3 Role of Savings in An Economy and NSS

A. Significance of CDNS in Mobilizing Private Savings

i. Avenues of Investment for Household or Private Savings

ii. Savings Instruments

iii. Share of Various Savings Schemes

iv. Rate of Return on NSS

v. Performance of NSS

B. Significance of NSS in Deficit Financing & Government Debt

i. NSS and Deficit Financing

ii. NSS and Domestic Debt

iii. NSS and Liquidity Management

iv. NSS and Development of Bond Market

C. Reforms Proposed by DCMC

Chapter 4 National Savings in Other Countries

i. United States

ii. United Kingdom

iii. India

iv. Sri Lanka

v. Malaysia

Chapter 5 TOR-1: Study of the organizational set up of CDNS

i. Institutional Growth of CDNS

ii. Vision of CDNS

iii. Mission of CDNS

iv. Core Objectives

Statutory Regime Regulating CDNS and NSS

vi. Structure of CDNS

vii. Functional Hierarchy of CDNS

viii. Administrative Structure of Regional Directorates

ix. Functions of Different Tiers/Offices

x. Indicative Staffing of National Savings Center

xi. Sanctioned Strength of CDNS

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Chapters Page No.

Chapter 5

xii. Vacancy Position

xiii. Directorate of Audit and Inspection

xiv. National Savings Treasuries

xv. Data Flow and Reconciliation Process

xvi. Training Arrangements

xvii. Infrastructure of National Savings Centers

xviii. Inflows and Outflows of NSS

xix. Budget of CDNS

xx. Recruitment Rules for Hiring in CDNS

xxi. Computerization of CDNS

xxii. Opening New Account or Encashment or Receiving Profit

xxiii. Scheme-Wise Investors

xxiv. Monthly Transactions

xxv. Competitors of NSOs

xxvi. Number and Nature of Complaints

xxvii. Disciplinary Cases

Chapter 6 TOR-2: Institutional, Procedural and Systemic Weaknesses

Which Hinder Efficient Delivery of Service to Clients

TOR-3: To Look into the Causes of Mal-Administration and

Mal-Functioning within Department

Institutional Weaknesses

i. Governance Framework for CDNS

ii. Structure of CDNS

iii. Organizational Culture

iv. Human Resource Management

v. Infrastructure of CDNS

vi. Budgetary Allocations

vii. Audit and Inspection in CDNS

viii. Dormant Cases

ix. Death Cases

x. Other Complaints

xi. Automation in CDNS

xii. Training Institutions

xiii. Cost Structure

xiv. Assigning Annual Target to CDN

100

103

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Chapters Page No.

xv. Capacity to Price NSS Products

xvi. Determining Annual and Future Liabilities

xvii. Reconciliation of Receipts and Repayments

xviii. Inventorying

xix. Financial Statements of CDNS

104

105

Chapter 7 Summary of Findings 106

Chapter 8 TOR-4: Recommendations

Conclusion

115

155

Tables

Table 1

Table 2

Table 3

Table 4

Table 5

Table 6

Table 7

Table 8

Table 9

Table 10

Table 11

Table 12

Table 13

Table 14

Table 15

Table 16

Table 17

Table 18

Table 19

Table 20

Table 21

Table 22

Table 23

Table 24

Table 25

Table 26

Table 27

Country Comparison of National Savings as % of GDP

Structure of Savings and Investment

Trends and Structure of Financial Savings in Pakistan

Profile of Selected NSS Instruments

Share of Various NSS Instruments in Outstanding NSS Stock

Return on Bank Deposits, Government Securities and NSS

National Savings Schemes Indicators

Comparison of NSOs in Select Countries

Province/Region-wise National Savings Centers

Categorization of National Savings Centers

Indicative Staffing of CDNS

Sanctioned Strength of CDNS excluding DIA

Sanctioned Strength of Zonal and Regional Accounts

Vacancy Position of CDNS

Trend of Flows from NSS

Annual Budget of CDNS

Rules of Recruitment for Appointment

Scheme Wise Investors as on 30.6.2015

Average Monthly Transactions

Matrix of Banks Services

Number of Banks and Branches

Number and Nature of Complaints

Disciplinary Action

Types of Internal Linking Mechanism

Passive-Defensive Culture

Paradigms

Pros and Cons of External Hiring

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Chapters Page No.

Table 28

Table 29

Table 30

Table 31

Summary of Audit Pendency as on 30.9.2015

Region and NSC-wise Audit Pendency as on 30.9.2015

Recoverable Amount as on 30.9.2015

Proposed Rules of Recruitment

134

Figures

Figure 1

Figure 2

Figure 3

Figure 4

Figure 5

Figure 6

Figure 7

Figure 8

Figure 9

Figure 10

Figure 11

Figure 12

Figure 13

Figure 14

Figure 15

Figure 16

Figure 17

Figure 18

Figure 19

Figure 20

Structure of CDNS

Organizational Hierarchy of CDNS

Administrative Structure of RDNS

Data Flow and Reconciliation Process

Flow Chart for New Account Opening in NSC

Flow Chart for Profit Payment at NSC

Effective Organization Design

Strategies for Strengthening Organizational Culture

Organizational Culture Types

Why Technology is Difficult in Government

Proposed Organizational Structure of Pakistan Savings

Proposed Directorate of Product Development and Marketing

Proposed Structure of Directorate of Operations

Proposed Structure of National Savings Center Category A &

Proposed Structure of National Savings Center Category C & D

Proposed Directorate of Human Resource Management & Security

Proposed Directorate of Finance and Accounts

Proposed Directorate of Legal Services

Proposed Directorate of Audit and Inspection

Proposed Directorate of Information Technology & MIS

102

125

126

127

128

129

130

Appendix-1

Appendix-2

Appendix-3

Appendix-4

Appendix-5

Appendix-6

Appendix-7

Appendix-8

Appendix-9

Appendix-10

Notification of Federal Ombudsman Secretariat

NSS Rates Formula Devised by IMF

DCMC Recommendations Regarding NSS

Functions of Different Tiers/Offices of CDNS

Functions of National Savings Treasuries

Training Courses Conducted by NS Training Institutions

Posts Approved in PC-I for Phase II Automation

Audit Paras and Reconciliation Pending with Post Office

Audit Para Against CDNS for FY2014

Rules of Recruitment 2014 for CDNS

157

159

160

161

165

166

169

170

172

176

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Executive Summary

The Wafaqi Mohtasib (Federal Ombudsman) was pleased to constitute a

Committee to undertake an in-depth study into mal-functioning and mal-

administration in the Central Directorate of National Savings under

Establishment of the Office of Wafaqi Mohtasib (Federal Ombudsman)’s Order,

1983, in July 2015 after receipt of large number of complaints and persistent stories

appearing in the print media (See Chapter 1).

2. The Committee held six meetings from August to December, 2015. The

Committee was briefed extensively by the officers of the Ministry of Finance as well

as the CDNS. The Committee was further benefitted by previous studies about

CDNS in addition to comprehensive feedback given by the employees of CDNS.

The Committee also paid a surprise visit to model branch of CDNS. Chapter 2

explains the methodology the Committee pursued while doing this study.

3. National Savings, comprising private savings (household), corporate

savings (retained earnings) and public savings (government’s revenues minus

expenditures), is extremely vital for economic growth and sustainable

development as countries invest their savings in development and growth.

Although, there had been earlier savings schemes, such as Priscilla Wakefield’s

Female Benefit Club in Tottenham, in 1798, it is generally recognized that the

savings bank movement began in Scotland, in May 1810 when Revd Henry Duncan

first opened the doors to his parish bank in Ruthwell, Dumfriesshire, Scotland. His

business model was based on “Set up a bank. Open it from 1.00 - 2.00 p.m. once a

week. Do not allow customers to deposit more than £20 a year. Fine them if they do

not deposit regularly.” Celebrating the World Savings Day on October 31 every

year since 1924, following the 1st International Savings Bank Congress (World

Society of Savings Banks) in Milano, Italy, amplifies the significance of savings.

4. The efforts of mobilizing national savings in the sub-continent dates back

to 1873 when the Government Savings Bank Act, 1873 was promulgated. The

British Government launched it as a measure to muster funds from its colonies to

finance War expenditures (World Wars I and II) through Post Office Cash

Certificates in 1916 and Post Office Defense Savings Certificates in 1941-42. For

details, see Chapter 3.



Report has been drafted by the Chairman of the Committee and has been endorsed by the Members

of the Committee.

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5. To institutionalize the national savings, National Savings Bureau was

established in 1944 as an Attached Department of the Ministry of Finance headed

by National Savings Commissioner with the status of a Joint Secretary which was

mainly concerned with the policy and planning matters relating to Savings

Schemes. Post-independence in 1947, the Bureau was renamed as “Pakistan Savings

Central Bureau” headed by Central National Savings Officer with the status of

Under Secretary to the Government of Pakistan with far less freedom. It was again

renamed as Central Directorate of National Savings (CDNS) in 1953 with the status

of an “Attached Department” of the Ministry of Finance and was made responsible

for all policy matters and execution of various National Savings Schemes. For

details, see Chapter 5.

6. The avenues available for investment for household or private savings in

Pakistan include: National Saving Schemes, Bank Deposits (Fixed Term, Savings

Deposits), Mutual Funds, Life Insurance Policies, Business Equity and Corporate

Bonds---both through acquisition of securities listed on the stock exchange as well

as direct investment in other private businesses, Real Estate, Contractual Retirement

Savings---Individual interests in provident, gratuity and pension funds, Money

Accounts for investment in PIBs and T-Bills.

7. CDNS currently offers three types of products for savings: (i) Fixed Income

Guaranteed Products: Regular Income Certificates, Saving Accounts, Special

Savings Accounts, Defense Savings Certificates, Special Savings Certificates; (ii)

Index Linked Products (with capital guarantees): None; (iii) Products with return

wholly or partly in the form of prizes: Prize Bonds; and (iv) Welfare Products:

Behbood Savings Certificates, Pensioners Benefit Accounts. These saving

instruments are non-tradable long-term bonds having different maturity profiles,

ranging from 3 years to 10 years, with varying interest rates and other features

(Table 4).

8. The share of Defense Saving Certificates has decreased from 67.7 percent

in 1971 to 12.4 percent of the total NSS portfolio of Rs 2,417 billion net of Prize

Bonds in FY2015. Likewise, share of Regular Income Certificates has declined from

26.8 percent in 2000 to 15.7 percent in FY2015. Concomitantly, share of Behbood

Saving Certificates has increased to 26 percent and that of Pensioners’ Benefit

Accounts share increased to 8.6 percent. The share of BSC and PBA is likely to

increase further as the investment ceiling has been enhanced from Rs 3 million to Rs

4 million effective from July 1, 2015 (Table 5). Average rate of return on NSS peaked

to 18 percent in FY1996 and has now declined to 8.29 percent in December 2015

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(Table 6). The rate of return is fixed closer to market except welfare based products

since FY2000 following an agreement with the IMF (Appendix 2). The Government

moved from annual adjustment of rate of return to bi-annual to quarterly and now

bi-monthly on the basis of immediate first auction of PIBs and T-Bills post-

announcement of policy rate by the State Bank of Pakistan.

9. Mobilization of funds through NSS surged from Rs 132 billion in 1990 to

Rs 634 billion in 2000, growing at a compound average growth rate of 17 percent,

reaching to Rs 2,417 billion in FY2015, net of prize bonds the outstanding stock of

which is Rs 522.5 billion. Accumulated investment in NSS rose from 3.75 percent in

1980 to 18.3 percent of GDP in FY2001 which has declined to 10.7 percent of GDP in

FY2015. As against this, accumulated deposits in the banking sector declined from

37 percent of GDP in FY2005 to 29 percent in FY2009 before rising to 33.4 percent of

GDP in FY2015. Share of NSS net flows in deficit financing moved from 31.8 percent

in 1990 to 74 percent in FY1999 and declined to 17.9 percent in 2015. Share of NSS in

domestic debt surged to 37.5 percent in 1990 which peaked to 48.6 percent in 2000

has now declined to 24.1 percent (Table 7).

10. However, the savings to GDP ratio in Pakistan has been quite low as it

declined from 20.8 percent in FY2003 to 11 percent of GDP in FY2008 before

demonstrating some improvement from FY2009 reaching 14.1 percent of GDP in

FY2015 (Table 1). Concurrently, domestic savings declined from 18.1 percent in

FY2002 to 7.8 percent of GDP in FY2013 before reaching 8.0 percent in FY2015 (Table

2). A cross-countries comparison revealed that Pakistan’s national savings rate has

remained the lowest not only vis-à-vis selected developed countries but also its peer

group: Bangladesh (29.5%), Canada (21%), China (50%), France (20%), Germany

(26%), India (30.1%), Italy (19%), Japan (22%), Sri Lanka (25.8%) and United States

(18%) in FY2013 (Table 1).

11. Consequently, Pakistan’s savings-investment gap rose from 2.1 in 1973 to

8.2 percent of GDP in FY2008. It has dropped to 1.3 percent of GDP in FY2014 on

the back of deteriorating investment from 19 percent in FY1981 to 15 percent of

GDP in FY2014 (Table 2). Similarly, financial savings nose-dived to 3.0 percent of

GDP in FY2009 from 7.6 percent in FY2005. It increased to 6.8 percent of GDP in

FY2012 and has again dipped to 5.9 percent of GDP in FY2015 (Table 3).

12. While increasing savings-investment gap underscore Pakistan’s

dependence on foreign savings, low savings rate is constraining economic growth

and development in the country. It implies low level of investment from national

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savings in infrastructure, water reservoirs and social sectors, slow upward

movement in per capita income, less job opportunities and rising poverty. The

country is left with no other option but to seek foreign assistance to finance

infrastructure and social sectors.

13. A comparison of National Savings Organizations of Pakistan, India, Sri

Lanka, Malaysia, United Kingdom and United States including their management

structure, products they offer and current volume (Table 8) reflects that these

countries have moved far ahead of Pakistan in modernizing the structures of

National Savings Organizations, professionalizing their governance and employing

technology. Generally, the National Savings network in most of these countries is

governed by either Board of Governors or Board of Directors. Even, India is now

moving towards installing ATMs for the savings system. Nonetheless, Pakistan

remained stuck to traditional structures, status and governance of CDNS which it

inherited in 1947 except changing the name from National Savings Bureau to

Central Directorate of National Savings and its management. The controlling

Ministry and the institution itself failed to benefit from the recommendations of

various studies because of intrinsic resistance to change (See Chapter 4).

TOR-1: Study of Organizational Set up of CDNS (For details, see Chapter 5)

14. The core objectives of the CDNS are:

(a) Promoting and mobilizing savings in the country;

(b) Generating funds for financing the budget deficit; and

enjoys the confidence of the people to channelize their savings for

investment, particularly the small savers, pensioners, widows, etc.

15. CDNS comprises of: (a) Central Directorate of National Savings; (b)

Directorate of Inspection and Accounts; (c) Directorate Legal; (d) Directorate of

Schemes; (e) 7 Zonal Inspection and Accounts Offices and 12 Regional Inspection

and Accounts Offices; (f) 12 Regional Directorates and (g) Training Institute of

National Savings at Islamabad with a Sub-Training Institute at Karachi to perform

various functions (Appendix 4). The organizational structure of CDNS is at Figure 1.

The organizational hierarchy is at Figure 2. The administrative structure of a

Regional Directorate is at Figure 3. The functions of various tiers of CDNS are at

Appendix 4.

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15. National Savings Schemes offered by CDNS are sold through a network of

374 National Savings Centers all over the country. However, 237 Tehsils and 6

Agencies of Federally Administered Tribal do not have National Savings Center

(Table 9). The categorization of NSCs is at Table 10 and the indicative staffing

proposed by the CDNS is at Table 11. The National Savings Schemes are regulated

by a stream of laws and rules (Chapter 5, page 66). The sanctioned strength of CDNS

and its directorates as well as NSCs is 4007 (Table 12) and sanctioned strength of

Directorate of Inspection and Accounts including Zonal Inspection and Accounts

Offices is 292 (Table 13). However, 1443 operational positions were vacant at the

time of this study (Table 14) which are now in the process of filling through

Departmental Promotion Committee and Federal Public Service Commission. This

huge vacancy has greatly affected public service delivery of CDNS.

16. There is a regular flow of data from field formations to the Regional

Directorates and CDNS and the process of reconciliation which is reflected at

Figure 4. CDNS has 13 National Savings Treasuries and 3 sub-Treasuries throughout

the country dealing with cash handling (Appendix-5). The training institutions of the

CDNS conduct various training program for new entrants and refresher courses for

in-service employees (Appendix-6).

17. Although, the budget of CDNS has increased from Rs 589 million in

FY2006 to Rs 2,591 million in FY2016, an increase of 340 percent, in nominal

terms. However, 68 percent of this budget is establishment charges leaving 32

percent for operational expenses. Nevertheless, 41% of the operational budget is

meant for rent of various offices leaving a paltry amount for the remaining

operations which is hugely affecting public service delivery, both at the

headquarters as well as retail outlets. It needs to be recognized that during the same

period, the total portfolio of CDNS has increased from Rs 940 billion (inclusive of

Prize Bonds) to Rs 2872 billion, an increase of 205 percent. The total administrative

budget of CDNS is around 0.2 percent of gross inflows and less than 1 percent of

net inflows (Tables 15 and 16). The Recruitment Rules for direct recruitment and

promotions to various positions is at Table 17.

18. The process for opening a new account and encashment of profit or

instruments is reflected at Figures 5 and 6. CDNS currently deals with over 7

million investors/account holders (Table 18). On the average, CDNS network

handles closer to 4 million transactions monthly (Table 19). The competitors of

CDNS are providing far more facilities (Table 20). The geographic reach of

competitors is considerably higher, 374 NSCs vs 10,984 branches (Table 21). The

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complaints against NSCs and CDNS are generally in relation to deduction of Zakat

and With-holding Tax, procedural matters, interest rates stamped on back side of

the certificates as these rates change every two months and huge waiting time

besides malpractices (Table 22). The disciplinary action is generally taken against

lower employees and that too, mostly, imposition of minor penalty (Table 23).

TOR 2- To Identify Institutional, Procedural and Systemic Weaknesses

Which Hinder The Efficient Delivery Of Service To The Clients

TOR 3 - To Look into the Causes of Mal-Administration and Mal-

Functioning within the Department (For details, see Chapter 6)

19. The outstanding stock of NSS is approximately Rs 3,000 billion inclusive

of bearer bonds. As of June 30, 2015, the investment in NSS constitutes 9 percent of

GDP, 19.1 percent of domestic debt, 70.1 percent of non-bank borrowings, 18

percent of deficit financing and 25 percent of bank deposits. It clearly reflects that

CDNS is no ordinary organization but is performing a vital role in the financial

sector of Pakistan and the economy since independence.

20. CDNS, as it exists today, does not seem to be a result of planned, systemic

and scientific construction nor serious thinking and strategy. The current

organizational structure has evolved over time as a result of ‘patch-work as and

when needed’ rather than a consequence of any management study or scientific

analysis. Expediencies and deficit financing requirements seem to have been

instrumental in determining the form and status of various Savings Schemes

introduced from time to time without any market survey, financial sector demands

and pricing of the schemes.

21. Apparently, CDNS is not getting due attention and focus of the policy

makers because of perceived captive investors, investment and absence of

strategy to accelerate rate of savings in Pakistan. Good governance of a financial

institution, such as CDNS, requires checks and balances on the power and rights

accorded to it. Besides, behavior in a financial institution is key and focus on right

behviour means a shift from the “hardware” of governance (structures and

processes) to the “software” (people manning the organization, management,

leadership skills and values).

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22. In addition, management needs to play a continuous proactive role in the

overall governance process. The vast majority of governance and control processes

are embedded in the organizational fabric, which is woven and maintained by

management. The controlling authority and the stakeholders are dependent on

management for information and for translating sometimes highly technical

information into issues and choices requiring business judgment. Supervisors have

legally defined responsibilities relating to risk control, fraud control and

conformance to laws, regulations and instructions and standards of conduct. To be

effective, this requires regular interaction between the management of a financial

institution and senior people in supervisory agencies (Chapter 6 discusses these issues

at length).

23. The seriousness of the Ministry of Finance to manage this important

financial institution is reflected from the fact that CDNS is without a regular

Director General of BPS-21 for the last two years. Internally, no one qualifies for

the job. Consequently, the CDNS is now being managed by Joint Secretary (Budget)

of the Ministry on part-time basis as additional charge. The supervisors in the

Ministry perceive it as one of the Wings of the Ministry, therefore, the interaction is

quite informal and need and demand based, generally for some appointments or

financing requirements, rather than formal, structured and governance oriented.

24. Ministry’s approach towards the CDNS seems to be characterized by (i)

aversion to long-term planning and goal setting; (ii) focus on ‘fire-fighting’ than

restructuring the organization to make it more compatible with 21

Century’s needs

and modernizing systems and procedures; and (iii) tendency to respond only to the

urgent as opposed to the important. The CDNS is neither classified as a financial

institution (bank) in true sense nor categorized as non-banking financial institution

(NBFI), therefore, it is outside the regulatory regimes of either the SBP or the SECP.

25. Generally, the structure of an organization is divided into five different

configurations: (i) simple structure, which is often a small organic organization

characterized by the loose division of labor, small middle level management, an

informal decision making process, and the centralization of power which allows for

rapid response; (ii) machine bureaucracy, which is characterized by centralized

power with a formal decision making chain of authority, highly specialized and

formalized procedures with a clear separation of line workers and management and

communication is preferably formal throughout all the levels; (iii) professional

bureaucracy, has highly specialized jobs and minimal formalization; the structure is

decentralized, both vertically and horizontally, allows for a freer working

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environment, but keeps the standardization requirements used by a large

organization in stable and complex ambiance; (iv) divisionalized form, can be

recognized by the limited vertical decentralization; there are different autonomy

divisions which all report to headquarter, thereby making the middle management

a key part of an organization; and (v) adhocracy, where the organization is divided

into functioning project teams; this organic structure has little formulation of

behavior, but extensive horizontal job specialization, this structure shows the least

reverence to classical principles of management and can be divided into two

different subcategories: operating adhocracy and administrative adhocracy.

Operating adhocracy functions on behalf of their clients; on the other hand,

administrative adhocracy serves the organization itself.

26. The organizational structure of the CDNS, at best, can be defined as a

combination of line and function type with configuration of machine

bureaucracy characterized by centralized power, a formal decision making chain

of authority and inward looking top-management having traditional outlook. The

functions of the organization are pretty much standardized and formalized with

least innovation. There is high degree of concentration of authority managing the

lines of work flows across the hierarchy and functions. (For detailed discussion, see

pages 88 to 91 as well as Figure 7 and Table 24).

27. The distribution of manpower is skewed in favour of field operations with

perfunctory focus on important functions of audit and training. Internal linking

mechanisms are weak and there is hardly any effort to change CDNS outlook

moving from a traditional to modern outlook.

28. Around 42 percent of the employees in CDNS are non-technical staff in

BPS 1 to 7 performing duties as gunman and general attendant which clearly

reflects highly skewed human resource structure. While large strength of Gunmen

is understandable, being a financial institution, it is equally important to rationalize

the staffing of CDNS and strengthen the Technical manpower performing duties in

audit, inspection and NSCs.

29. Organizational culture is the basic pattern of shared assumptions, values,

and beliefs. Organizational culture has three main functions: (1) it is a deeply

embedded form of social control; (2) it is also the “social glue” that bonds people

together and makes them feel part of the organizational experience; and (3)

organizational culture helps employees make sense of the workplace. Organizations

have subcultures as well as the dominant culture. Some subcultures enhance the

dominant culture, whereas countercultures have values that oppose the

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organization’s core values. Subcultures maintain the organization’s standards of

performance and ethical behavior. They are also the source of emerging values that

replace aging core values.

30. The CDNS can be conveniently classified as closed organization whose

organizational culture can at best be described as “passive-defensive”

characterized by (i) approval-oriented; (ii) traditional and bureaucratic; (iii)

dependent and non-participative and (iv) ignore success. Leadership of the

organization has remained frail and unsteady because of its over dependence on the

bureaucratic hierarchy of the Ministry of Finance for all kinds of decisions.

31. Grouping, simmering internal conflicts amongst the officers as well as

staff and a culture of penalizing the juniors is quite common. The “power

groups” tend to shelter the weak in their groups and cover up employees’ faults

rather than the organization enforcing rules and discipline. Though, the normal

tenure of a NSO is three years, however, he can be transferred “on deputation to

other department(s) of CDNS on the pretext of “demand” or “urgent need” (For

detailed discussion on Organizational Culture, see pages 88 to 91 as well as see Figures 8

and 9 and Tables 25 and 26). This affects not only the public service delivery but also

the internal management. Many of stories appearing in the newspapers is the result

of this internal conflicts and groupings.

32. Culturally, the closed system organizations such as CDNS are always

opposed to external hiring, particularly at the decision-making level. Human

Resource of CDNS suffers from six major challenges: (i) disproportion staffing and

workload; (ii) huge vacant position, around 34 percent; (iii) delayed or stuck up

promotions (iv) enormous cadre of non-technical staff; (v) absence of Deputation,

Training and Leave Reserve; and (vi) narrow space for induction of direct recruits at

senior levels (For detailed discussion on Human Resource Management, see pages 91 to 95

as well as Table 27).

33. During last three decades, a number of schemes have been made available

to the investors of National savings. Resultantly, both the number of investors

(currently over 7 million) as well as frequency of transactions particularly in

disbursement of profits on monthly basis have increased manifold (closer to 4

million). Nevertheless, not only the total strength has not increased in

commensuration to increased work load, the distribution of available staff does not

follow any scientific pattern. There is a huge gap between indicative staffing and

actual staffing at different categories of NSCs which affects the delivery of service.

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34. Regional Directorates of Accounts and Zonal Inspection and Audit

Offices which are lynchpin of the system and are required to perform significant

functions within CDNS, being watchdog, are the most manpower starved. The

total strength of 292 is expected to perform 100 percent of audit of closer to 4

million transactions per month, carrying out regular as well as surprise inspections

of the NSCs and Directorates.

35. A large number of vacant positions (currently 1,443 or 34 percent) have

aggravated the situation causing huge shortage of field staff since long.

Nevertheless, very recently efforts are being made to fill these vacancies through

direct recruitment as well as by promotion as per rules. Shortage of staff is also

restraining the management in sending the officers and officials of the CDNS for

necessary training and refresher courses which are of utmost important not only to

develop the human resource’s capacity but also key for the organizational growth.

36. The passive-aggressive culture and group-politics in CDNS has affected

the organization adversely. It manifests in adverse or average Performance

Evaluation Reports of most officers. Consequently, none of the officers in BPS-19

qualifies the threshold to be eligible for promotion in BPS-20 or 21. The meetings of

DPC are held with a lag delaying promotions. It is not only badly affected quality of

service in the National Savings Centers but has relegated vital functions of the audit

and inspection to low priority.

37. It is surprising to note that the CDNS does not have an earmarked DTL

reserve. The Establishment Division notified two Office Memorandums in1960s viz.

Estt. Division O.M. No.3/1/60-C-III, dated 4-10-1961 and Estt. Division O.M.

No.3/1/60-C-III, dated 17-6-1967 for maintaining Deputation, Training and Leave

Reserve equal to 10 percent of total strength of the Section Officers. Consequently,

the senior officers are reluctant to grant paid or unpaid leave as it means losing a

helping hand at the workplace. Both the Controlling Ministry as well as the CDNS

seems to be incognizant of the fact that while maintaining DTL reserve has upfront

cost, it benefits both the organization and the economy as it leads to higher labour

force participation, greater labour productivity and work engagement and better

grooming of human resource. Researchers have concluded that the paid leave

policies are important drivers of labour force participation and better bonding

between the staff and the management.

38. The CDNS new recruitment rules notified in 2014 allows external hiring at

JNSO, ANSO, NSO and Assistant Director level though, it is yet not at the

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desired level particularly in the rank of ANSO, DNSO, Assistant Director and

Joint Director/Director. It is important to resolve this issue and open up all level of

positions to external hiring for induction of fresh graduates and market experience

in the organization.

39. CDNS does not own any property, building or office throughout Pakistan

except two open plots: one in Saddar, Rawalpindi and the other in Mauve area,

Islamabad. All operational offices and National Savings Centers including the

Head Office of CDNS are housed in rented properties. Not all NSCs are located at

convenient locations and hired offices are generally small and at times, dimly lit

portraying shabby look or at worst dungeon. Such NSCs become overcrowded

during early days of each month with long queues, angry and frustrated steaming

out their anger against the government. However, there are few exceptions in big

cities and majority of the NSCs do not have Helpdesk or Information Counter

which makes customers’ facilitation very limited.

40. The constraining factors in modernizing and improving the outlook of

NSCs include: (i) gap between per square foot ceiling of Housing Ministry on

renting office space and the appropriate space needed for NSCs being public service

delivery financial organization; (ii) ceiling on current commercial rates prescribed

by the Ministry of Housing in consultation with the Ministry of Finance which

prevents the CDNS to rent offices/NSCs in better localities or better commercial

buildings; (iii) budgetary constraints in renting larger space for the NSCs and

Regional Directorates; and (iv) improving and modernizing rented offices/NSCs

from the public exchequer fearing audit objections and CDNS is at the mercy of

property owners for any renovation and improvements.

41. Most of the NSCs endure scruffy operating environment which frustrates

and demoralizes the staff affecting the service delivery negatively. They are far

less motivated than the staff of their competitors who are better dressed up, where

customers are greeted by the Public Relation or Customers Facilitation Officer to

guide and facilitate them. The employees are more knowledgeable about the

products the Banks offer.

42. The budget of CDNS has increased in nominal terms though, the

establishment budget has increased from 52% in 2009 to 68% of the gross budget,

an increase of 159% while the operational budget has declined from 48 to 32% of

the gross budget during the same period. The cumulative inflation during the

same period was 72.3%, thus turning the operational budget negative in real terms.

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Almost two-third of the CDNS gross budget is allocated to Establishment charges

leaving only one-third for operational budget. Over 40 percent of the operational

budget is expensed on rentals leaving paltry budget for running the other

operations. The gross budget of CDNS has been only 0.2 percent or less of the gross

inflows and less than 1 percent of net inflows since many years. These skewed

allocations have adversely affected logistic arrangements, operational environment,

efficiency and quality of public service delivery at each NSC.

43. The jurisdiction and span of control of each Zonal Inspection and

Accounts Office, responsible for inspections and audit, is too wide which is

making it difficult to carry out audit of 100 percent transactions at the NSC level

and Regional Directorates. Besides, the ZIAOs have been provided 800 CC

vans/cars that too in unsatisfactory conditions discouraging the Inspecting

Officers/Directors not to move around in the field. As against a sanctioned strength

of 131 Inspecting Officers, there are only 58 incumbents, leaving 73 posts vacant

entailing a shortage of around 56%. The said sanctioned strength was last revised in

1984. Shortage of inspecting officers and pilling up of huge records to be reconciled

and audited is not only affecting the quality of audit but also paves the way to

committing fraud/ forgery/embezzlement which remains undetected in the

absence of regular audit.

44. There is huge audit pendency, both in NSCs as well as other units. Audit

of 64 percent units of CDNS and 65 percent NSCs is pending for the last 2 and 3

years, respectively. It is surprising that audit in 42.5 percent of NSCs is pending for

over three years (Table 28). Decomposition of audit pendency region-wise provides

a deeper insight of the conditions prevalent in CDNS. The worst region is Lahore

where audit in 93 percent units is pending for 24 to 36 months followed by Karachi

(88 percent), Hyderabad (79 percent), Multan (76 percent), Islamabad (72 percent),

Sukkur (71 percent), Faisalabad (56 Percent) and Gujranwala (50 percent). The

regions where audit pendency is in lower than 50 percent units for 24 to 36 months

include: Quetta (45 percent), Bahawalpur (44 percent), Abbottabad (35 percent) and

Peshawar (31 percent). It is pretty alarming situation which requires immediate

attention of the Controlling Ministry (Table 29) because such huge pendency makes

the organization vulnerable to fraud, embezzlement and cheating.

45. Reconciliation of an amount of Rs 37 billion remained pending between

CDNS and Pakistan Post Office and it took huge efforts to carry out this

mandatory effort. Despite these efforts on the part of CDNS, there is still a

pendency in this reconciliation which requires early resolution. An amount of over

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Rs 436 million is recoverable since long which has been embezzled, forged, looted

or losses were caused due to overpayments of profit, less deduction of withholding

tax/zakat and allowing ineligible investors to invest (Table 30). For detailed

discussion, see page 96 to 99 and Appendix 8 and 9).

46. The State Bank of Pakistan’s Prudential Regulation M-1 requires that if an

Account (Savings/Current) has not been operated by the Customer during the last

12 months, the Account is classified as Dormant Account and no withdrawal is

allowed until the Account is reactivated. The Bank reserves the right to disallow

debit transaction(s) in the customer account while the account remains dormant/

inactive. If no transaction has taken place in the Account and no statement of

account has been requested or acknowledged by the Customer during the last ten

years, the deposit in the Account is required to be surrendered by the Bank to the

St8ate Bank of Pakistan as required by Section 31 of Banking Companies

Ordinance, 1962, except deposits in the name of a minor or a Government or a court

of law.

47. The CDNS is not practicing this policy nor is maintaining a register of

dormant accounts including the amount involved, NSC-wise, region-wise and in

consolidated form at the HQ. It is learnt that such dormant accounts are

vulnerable to manipulations in the NSCs and such manipulations were detected by

the Audit after a while.

48. Likewise, the NSCs, at the time of opening new accounts, ask the investor

to nominate his or her beneficiaries along with share of each beneficiary in the

investment, in case of death, yet the process of transfer is so long and time

consuming that the beneficiaries are forced, willingly or unwillingly, to pay the

demanded rent. Dormant Accounts and Death Cases are susceptible to

fraud/forgery, rent seeking especially in rural areas and require

systemic/institutional response.

49. Efforts are on the anvil since 2004 to transform the whole system to full

automation, when CDNS purchased the mainframe, albeit at slow pace and with

reluctance because of internal resistance.

Nevertheless, only 83 NSCs have been

computerized without online connectivity and networking under Phase-I approved

at a total cost of Rs 397.32 million. It is proposed to computerize additional 46 NSCs

at Islamabad, Gujranwala, Faisalabad, Lahore, Hyderabad and Karachi under this

phase under Phase-II approved at a total cost of Rs 897.75 million in FY2015 after a

gap of 18 months since termination of Phase-I.

Consequently, the CDNS lost all the

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trained manpower in IT and it has to seek fresh recruitment for the new project

delaying the process further. Full automation with current pace and resource

allocation will take at least 10 to 15 years. Even after completion of Phase II, only

129 NSCs (34.5%) will be computerized leaving 245 (65.5%) NSCs, Regional

Directorates, Zonal Inspection and Accounts Offices without automation. (For

detailed discussion on automation, see pages 100 to 103).

50. According to the IT Staff of the CDNS, the existing solution (developed in

2003) has completed its life cycle. The current software solution is unable to cope

with the available modern technologies and CDNS cannot achieve flexibility,

durability, introduce multiple delivery channels for its valued customer and

provision/linking with other Government entities like Ministry of Finance, SBP,

AGPR and Scheduled Banks. The effort of computerization and full automation

received a serious jolt when Ministry of Finance declined to create necessary posts

in the recurring budget on completion of Phase-I completed in 2013 despite

recommendations of the Planning Commission vide its O.M. No. 3 (36)/IT/PC/38

dated: 21 Feb, 2014. Consequently, barring few exceptions the computerized NSCs

have either reverted back to manual system or running concurrent manual and

computer system.

51. There seems to be general resistance to full automation in CDNS which is

in the pipeline since 2004 but no way near to partial or full automation.

Generally, automation is resisted by the employees in the Government for the

reasons they: (i) cannot comprehend the technological developments and its

potential due to lack of knowledge; (ii) are risk averse and lack vision; (iii) lack

skills to manage complex technological projects; (iv) power shifts to automation

which reduces or eliminates opportunities for corruption and rent-seeking; (v) with

automation, power shifts to new players; (vi) systems moves from favours territory

and hierarchy to collaboration amongst all tiers; (vii) patronage is replaced by

public good; (viii) management and employees feel more comfortable with status

quo; and (ix) form negative coalition against change and transformation.

52. The training institutions of CDNS suffer from high turnover ratio which

limits the availability of trained staff. Officers of BPS-18 and above are not

provided any training. Most of the instructors are outsourced.

53. The CDNS does not seek service charges (opening of new accounts, issuing

check books, transfer of accounts), being a government organization, and provide

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all services free of cost and all costs are charged to its budget. As against, its

competitors charge fee for the services they provide to the customers.

54. Budgeting for fund flows from NSS is done by the Finance Division in a

very simplistic manner. It assigns an arbitrary target to the CDNS without any

relation to overall savings environment in the country, competitive products

competing with NSS, characteristics of the underlying portfolio or patterns of

encashment or estimated liabilities in a financial year which generates extra

pressure to meet the target arbitrarily determined by the Finance Division (For

details, see page 103).

55. CDNS lacks expertise to carry out pricing of products or determining

coupon rates. As discussed, the pricing is determined at 90 percent of the most

recent auction of PIBs of corresponding maturity which may not be consistent with

market yield because of time lag between the period in which base yield (PIBs) is

measured and that during which the rates are offered. (For details, see page 104).

CDNS and NSCs are not geared to report accrued interest and unpaid interest on

monthly basis or annual basis to assess the liability, scheme-wise, or even reporting

outstanding balances, scheme-wise, by year end. This is particularly important

given the high proportion of amounts outstanding against Defence Savings

Certificates which are a zero coupon investment where interest is payable in lump

sum at maturity or premature encashment. (see page 104).

56. There is a lag in reporting and reconciliation at different levels. Besides,

GPOs follow inconsistent timeframe for reporting. As a result, monthly figures

reported by the PPO include a mix of figures relating to the reporting month and

those relating to the previous month (see page 105). The CDNS is not well equipped

with modern techniques of inventorying the Savings Certificates to align them with

frequent changes in the NSS rates of return, which have moved from annual to bi-

monthly rates adjustment (see page 105).

57. National Savings Centers/CDNS retain General Journals and Ledgers to

maintain Dr and Cr entries of each account rather than maintaining Balance

Sheets, Income Statement and Cash Flow Statement to determine the soundness

and financial integrity of the system at each functional unit level and consolidated

financial statements of the organization (see page 105).

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TOR 4 - To Make Recommendations For Smooth, Effective and Efficient

Functioning Of The Department in Accordance With The Objectives For Which It

Was Established and To Improve Service Delivery

58. The landscape for national savings continues to change around the globe and

so does its regulatory environment. It is important that Pakistan Savings adapts its

processes and procedures as it aims to compete to provide better services, embeds

compliance with relevant regulatory requirements and ensures minimizing risks. If

the CDNS is to be able to operate effectively and efficiently, it is necessary to give it

autonomy with powers to make its own administrative and financial decisions in a

prudent manner.

59. The Committee, considering the growing NSS portfolio, governance,

organizational, managerial and procedural weaknesses as well as rising complaints

of mal-administration against CDNS and best practices in relation to National

Savings Organization around the globe, agreed to make the recommendations: (i)

for implementation immediately, in short-term and medium to long-term. (For

details, see Chapter 7).

60. The proposed measures/recommendations include:

(i) Future Role of Pakistan Savings: The future role of Pakistan Savings may be

to:

(a) mobilize savings by designing, marketing and managing retail

savings schemes which are totally secured and backed by the Federal

Government.

(b) mobilize institutional savings through separate products designed

specifically for institutional savings targeting their pension funds,

provident funds, etc.

savers including senior citizens, pensioners, farmers, small savers,

Children and overseas Pakistani expatriates for which it is important

to carry out regular surveys of the market.

A. Proposed Immediate Measures (0 to 6 Moths)

(i) Appointment of Full Time Chief Executive Officer of CDNS: Ministry of

Finance must take necessary steps to appoint full time Chief Executive

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Officer on regular basis, as top priority, from the market having management

and financial experience and capable of implementing reforms before it

creates both legal and financial issues. Such huge organization cannot

continue to be managed on part-time basis as a Section of the Ministry.

Internally, no one is qualified to be appointed as CEO.

(ii) Framework for Addressing Audit Pendency: The Ministry of Finance in

consultation with the CDNS must prepare a framework and a schedule to

ensure that the entire audit pendency must be brought to zero in 12 months

without fail. In addition, steps must be taken to ensure that the audit must

remain current as unnecessary delay makes the system vulnerable to fraud

and embezzlement.

(iii) Recovery of Embezzled Amount: The Ministry of Finance must take

necessary measures to ensure early recovery of embezzled amount,

overpayments and finalize the cases related to dacoities. It is a huge amount

(over Rs 436 million) and recovery must be finalized besides taking

necessary disciplinary action against officers/staff involved in it.

(iv) Finalizing Reconciliation with PPOD: The Ministry of Finance must give a

sunset date to both the CDNS and the Pakistan Post Office Department to

finalize settlement of all outstanding reconciliation and recover outstanding

amount without further delay and all those involved in delaying this

reconciliation may be proceeded against.

(v) Provision of Notes Counting Machines and Counterfeit Currency

Detecting Machines: All Category A and B NSCs in urban areas and selected

rural areas, where volume of transactions on average is high, must have

Notes Counting Machines to save time as well as Notes Detecting Machines

to detect counterfeit currency.

(vi) Provision of Fax Machines: Regional Headquarters and major NSCs must be

provided fax machine facility to fast track inter-regional and headquarter-

regional communication.

(vii) Performance Evaluation of Employees: The performance of Pakistan

Savings may be measured in the format given below.

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Performance Evaluation of Employees

Objective Key Performance Indicators for a Financial Year (Rs in Million)

Gross

Deposits

Less Outflows Net

Inflows

Target Range Actuals Deviation

To raise an

amount of

net financing

within range

agreed with

the Ministry

of Finance

 Gross

deposits

mobilized in

a financial

year:

 For each

Certificate

 For each

Account

 Prize

Bonds

 Principal repaid

and interest paid

for each certificate

 Interest credited in

accounts less

amounts

withdrawn in FY

 Bonds redeemed

in the FY

To raise

funds at the

minimum

possible cost

Weighted average cost of new funds raised

through the NSS adjusted for early withdrawals

including the cost of administering the schemes

during the FY

95% of cost of

wholesale

funds raised

government

through the

issue of

permanent

debt

instruments

(viii) Special Dispensation for Hiring Space for NSCs and Offices: Ministry of

Finance and CDNS may seek approval of the competent authority to provide

special dispensation to CDNS permitting it to hire appropriate office

accommodation for Regional Directorates as well as NSCs in Quetta,

Karachi, Hyderabad, Larkana, Sukkur, Mirpurkhas, Bahawalpur, Multan,

Sargodha, Faisalabad, Lahore, Gujranwala, Gujarat, Peshawar, Kohat, Dera

Ismail Khan, Swat and Abbottabad in relaxation of standing instructions to

transform their outlook as well as organizational culture. It may require

relocating some of the offices of CDNS to better locations. The Finance

Division may consider delegating these approved powers to the CDNS to

avoid delays.

(ix) Web-Based Public Complaints and Grievances Portal: Pakistan Savings

(CDNS) may establish web-based Public Complaints and Grievances Portal

at each Regional Directorate of Operations and the Headquarters to receive

complaints from investors regarding service of field and regional formations,

queries from existing and potential investors and feedback on policies and

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public service of CDNS. Arrangements may also be made to receive

complaints in traditional manner. The proposed Framework for Effective

Complaints Management is at Figure 21 reproduced below. Each of these

elements are elaborated in Chapter 8 ( Recommendation No. cli).

Framework for Effective Complaint Management

(x) Follow Up of Complaints: The Headquarters and Regional Headquarters

must follow up these complaints and redress these grievances within two

week of their receipt. Regional Headquarters must send monthly report to

the Headquarters in the following format:

Region District No of

Pending

Complaints

beginning

of the

month

No of

Complaints

Received

during the

month

Total no of

Complaints

Nature of

Complaints

No of

Complaints

Settled

No of

Complaints

Pending at

end of

Month

Effective

Complaints

Management

Commitment

Communication

Visibility and

Accessibility

Responsiveness

Assessment and

Action

Feedback

Remedies

Business

Improvement

External Review

Monitoring

Effectiveness

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B. Proposed Short Term Measures ( 0 to 12 Months)

(i) Governance of CDNS: Strategically, four options are available for the

Government for CDNS: (a) Phasing-Out Option where CDNS may be

completely phased-out over a period of 10 years and its functions may be

transferred to Banks and their Asset Management Companies and Primary

and Secondary Dealers in the Market (US Model); (b) Status Quo Option

where CDNS may continue business as usual operating like an ordinary

poor organization; (c) Corporatization of CDNS transforming CDNS into a

Savings Bank incorporated under the Banking Companies Ordinance, 1962,

as a financial institution managed by an independent Board of Directors

(Malaysia and Sri Lanka Model) or incorporating it under the Companies

Ordinance regulated by the SECP or converting it into an Authority; and

(d) Autonomous CDNS which remains fully owned Federal Government

entity under the Ministry of Finance with full autonomy in its

management and day to day operations (UK Model) and no change in

employees’ status. The Committee strongly recommends that given the

current administrative and financial state of affairs, Autonomous CDNS is

the “Way Forward” to provide necessary autonomy and professionalize its

management. For detailed discussion on the proposed governance structure of

CDNS, see pages 116 to 122.

(ii) Committee to Review and Draft Pakistan Savings Bill 2016: The

Ministry of Finance may constitute a four Members Committee including

representatives from the Ministry, State Bank of Pakistan, SECP and

private sector which may review the Draft Pakistan Savings Bill 2007 and

2010 and draft Pakistan Savings Bill 2016. The draft Bill 2016 may provide

legal cover to transformation of CDNS, responsibilities of the Ministry of

Finance, governance structure and the management of CDNS and other

details in a comprehensive manner.

(iii) Transition Plan: The same Committee may be tasked to formulate

Transition Plan, to avoid any disruption or administrative problems, which

must be part of the Draft Bill.

(iv) Board of Governors: Pakistan Savings (CDNS) may be managed under

the stewardship of a Board of Governors which may provide collective

strategic and operational leadership and have clearly defined

responsibilities.

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(v) Constitution of Board of Governors: The Board of Governors may

comprise of nine members including: (a) Finance Secretary as Chairman;

(b) Additional Finance Secretary (Budget); (c) Deputy Governor, State Bank

of Pakistan to be nominated by the Governor SBP; (d) Director General

DPCO; (e) four members from the private sector who are well-known for

his integrity, expertise and experience representing each in financial

services & investment, Chartered Accountant including corporate law,

economist and capital markets and banking to be nominated by the Federal

Government; and (f) Chief Executive Officer of Pakistan Savings.

(vi) Board and the Chief Executive: The Board of Governors and the Chief

Executive Officer of Pakistan Savings may be appointed by the Ministry of

Finance in a transparent manner.

(vii) Executive Committee: The Bill may provide for an Executive Committee

comprising the Chief Executive Officer and the Executive Director Generals

of Pakistan Savings responsible for developing Strategic Plan and Annual

Business Plan for Pakistan Savings, day-to-day management and

developing strategy for achieving the assigned target.

(viii) Provision of Token Machine System: Every NSC in urban areas must

have Token Machine System installed to discipline both the visiting

customers and their prompt disposal by NSC staff rather than dealing with

the clients on the basis of acquaintance and friendship.

(ix) Rationalizing and Beefing up Management and Staffing: Ministry of

Finance must undertake urgently (a) rationalizing and beefing up

management at all levels in the light of proposed structures and create the

required number of posts as discussed in the report to improve service

delivery and (b) take immediate steps to fill all vacant posts (see Chapter 8).

For detailed discussions on the proposed organizational structure of

CDNS, see pages 122 to 142

(x) Proposed Organizational Structure: The organizational structure,

irrespective of change in its status and governance as elaborated above,

may be reformed in a manner that head of the institution may be assisted

by six executive Director Generals, viz. (a) DG Products Development and

Marketing; (b) Director General Operations including Regional

Directorates; (c) Director General Human Resource Management and

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Security; (d) Director General Finance and Accounts (e) Director General

Legal; and (f) Director General Audit and Inspection. Proposed

Organizational Structure of Pakistan Savings (CDNS) is at Figures 11 to

20 in Chapter 8.

(xi) The new management organizational structures proposed at Figures 11 to

20 will help in rectifying the management and non-management staff

which is highly skewed towards non-management staff. In the proposed

structures, all services, customers as well as professional and management

will be dealt by officers rank which will not only change the outlook of

Pakistan Savings but will also transform CDNS’s organizational culture.

(xii) Establishing Directorate of Product Development and Marketing: The

DG will be responsible for products development and marketing. Proposed

structure is at Figure 12 and functions assigned are at C-3 in Chapter 8.

(xiii) Establishing Directorate of Operations: The DG will be responsible for

all the operations of CDNS and management of NSCs. Proposed structure

is at Figure 13 and functions assigned are at C-4 in Chapter 8.

(xiv) Increasing Number of Regional Directorates of Operations: Regional

Directorates of Operations as well as Regional Directorates of Inspection

and Audit from 12 to 16 by establishing new Regional Directorates at

Larkana, Sargodah, Rawalpindi and Kohat to ensure effective span of

control and efficient discharge of administrative, operational and audit

functions.

(xv) Manning National Savings Centers: To upgrade quality of service and

provide friendly environment, it is proposed that the National Savings

Centers of Category A and B may be headed by Deputy Director (BS-18)

supported by 4 to 5 Assistant Directors (BS-17) and 4 Deputy Assistant

Directors (BS-16), 2 National Savings Assistants (BS-14), Customers

Relations Officer and Database Administrator. Proposed structure is at

Figures 14.

(xvi) NSCs of C and D Category may be headed by Assistant Director (BS-17)

supported by 3 Deputy Assistant Directors, National Savings Assistant and

Database Administrator. Proposed structure is at Figure 15.

(xvii) It is expected that the proposed structures may provide new outlook to

Pakistan Savings, improve its management and public service delivery,

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may ensure regular audit and prompt decision-making as is required for

such organizations. For details regarding functions assigned to Regional

Directorate and NSCs, see C-5 and C-6 in Chapter 8.

(xviii) Establishing Directorate of Human Resource Management and

Security: The Directorate will be responsible for management,

administration, recruitment, training, procurement and security. Proposed

structure is at Figure 16 and functions assigned are at C-7 in Chapter 8.

(xix) Establishing Directorate of Procurement: A directorate of procurement

under the DG HRM and Security may be established which may be

responsible for bulk procurement in Pakistan Savings to meet its annual

requirements strictly following PPRA Rules.

(xx) Establishing Separate Security Wing: A separate Security Wing headed

by Chief Security Officer with necessary support staff at the headquarters

and linkages at Regional Headquarters Operations may be established to

streamline security system of the NSC.

(xxi) Establishing Directorate of Finance and Accounts: The Directorate will

be responsible for all matters relating to finance and accounts including

preparation of financial statements. Proposed structure is at Figure 17 and

functions assigned are at C-8 in Chapter 8.

(xxii) Establishing Directorate of Legal at HQ and Joint Directorates Legal:

CDNS may establish Directorate of Legal Service at Headquarters

supported by Joint Directors each at provincial capitals at Lahore, Karachi,

and Peshawar which should work in close coordination with Directorate of

Operations. This Directorate shall work in close coordination with

Directorate of Operations. It may advise Directorate of Operations on all

cases of Death and Transfers, Pledges, Issuance of duplicate certificates

expeditiously following due process and legal requirements. The

Directorate may prepare Standard Operating Procedure and the Check List

of documents to be submitted for processing the case which must be

publicized. The Directorate must ensure every case is processed with two

to three weeks from the date of submission. The proposed structure is at

Figure 18 and functions assigned are at C-9 in Chapter 8.

(xxiii) Establishing Independent Directorate of Audit and Inspection: To

promote independent and objective assessments, it is proposed that the

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Director General Audit and Inspection may report directly to the Board of

Governors through its Audit Committee. It is extremely important that the

internal auditors must not be dependent on Chief Executive Officer or the

Ministry of Finance for the security of his position. The proposed structure

of this directorate is at Figure 19 and functions assigned are at D-1 in

Chapter 8. It must be ensured that the internal auditors have access to the

Board on confidential basis and the audit function is independent of

Pakistan Savings Management, both by intent and in actual practice.

(xxiv) It is important that the Directorate of Audit and Inspection has

appropriate level of manpower manned by professionals with integrity,

capable of building trust, communicating, continuous learning and have

diversified perspectives, experiences and skills. There can be no

compromise on this as Pakistan Savings is handling public money which

requires continuous diligence and scrutiny.

(xxv) Vigilance of Internal Audit: Regulatory changes, economic headwinds

and the interconnectivity of financial business require most financial

institutions to operate in a more agile manner so they can quickly dodge

threats and exploit opportunities. These dynamic forces internal audit –

which is responsible for providing assurance on internal controls, risk

management and corporate governance as well as consulting services to

the financial institution – to remain vigilantly informed of the latest global

developments affecting the institution and how it may respond to external

drivers of change.

(xxvi) Issuance of Audit Calendar: The Directorate General Audit will issue

Audit Calendar at beginning of financial year (15

July) duly approved by

the Executive Committee which must be followed rigidly. While preparing

Audit Calendar, it must be ensured that Audit Staff is provided

appropriate and reasonable time in commensuration with expected

workload for conducting meaningful audit rather than fulfilling mere

formality. The Executive Committee may oversee this function.

(xxvii) CDNS must ensure that Audit staff is paid identical TA/DA as the staff

of Federal Audit is being provided to sustain their motivation.

(xxviii) Internal Audit Report: Directorate of Audit and Inspection may cause to

be prepared an annual internal audit report of Pakistan Savings accounts

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which shall be submitted to the Board by the Chief Executive Officer within

180 days after the end of financial year.

(xxix) External Audit: While effective internal audit is an effective management

tool, external audit is equally important for three reasons: (i) it identifies

weaknesses in internal controls; (ii) it lends credibility to Financial

Statements; and (iii) external auditors provide unbiased and expert

recommendations as they work with single purpose of improving the

performance. It is proposed that the statement of accounts of Pakistan

Savings may also be audited by the external auditors to be appointed with

the approval of the Board and the Federal Government who shall be a firm

of Chartered Accountants of repute or by Auditor General of Pakistan.

(xxx) Report of the External Auditors: The external auditors must make a

report to the Board and the Federal Government upon the balance sheet

and statement of accounts and in that report, they shall state whether in

their opinion the balance sheet is full and fair balance sheet containing all

necessary information and properly drawn up so as to exhibit a true and

correct view of affairs of Pakistan Savings.

(xxxi) Sending Report of External Auditors to the Federal Government: The

Board shall, within 180 days of the end of each financial year, send a copy

of accounts certified by the external auditors and a copy of auditors’ report

to the Federal Government.

(xxxii) Audit Committee: The Board is expected to appoint a minimum of three

directors to the Audit Committee. These individuals should be

independent and financially literate (able to understand financial

statements and general finance concepts) and at least one member should

have banking, accounting, or other relevant financial proficiency.

(xxxiii) Members of the Audit Committee: The members of the Audit Committee

should be particularly suited to fulfill the following responsibilities: (a) To

adopt a formal written charter that is approved by the full Board of

Governors which specifies the scope of the audit committee's

responsibilities and how it should carry out those responsibilities, and to

review annually the performance by the audit committee of its

responsibilities, as set forth in the bylaws or charter; (b) To hold regular

meetings to permit adequate and timely discussions of audit results, losses,

and irregular occurrences, and other matters of concern; (c) To obtain from

the internal auditors an independent and objective assessment of the

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adequacy and effectiveness of the controls over (i) financial reporting; (ii)

effectiveness and efficiency of operations; and (iii) compliance with laws

and regulations, at such regular meetings and at other times as necessary;

(d) To recommend to the Board of Governors the appointment and

termination (including separation payments) of the external auditors; (e) To

formally evaluate the performance of the internal auditors following

guidelines set forth by the Pakistan Savings for evaluating the performance

of other officers; (f) To review and approve an annual internal audit

program that provides for audits for which the scope and frequency are

reasonably expected to ensure an appropriate level of audit attention and

to coordinate with any external audit conducted at the direction of the

Board of Governors; (g) To review and approve an annual internal audit

budget that is sufficient to carry out an effective audit program, to review

performance against budget, and to determine whether any significant

variances from existing System and guidelines are justified; (h) To meet

with the external auditors to discuss the Pakistan Savings’ financial

statements and issues arising from the annual external audit; and (j) To

establish procedures for (i) the confidential, anonymous submission by

employees of complaints and concerns regarding questionable accounting,

internal accounting control, or auditing matters and (ii) the receipt,

retention, and treatment of such complaints and concerns.

(xxxiv) Establishment of Directorate of Information Technology and MIS: The

lynchpin of proposed organizational structures is the Directorate of

Informational Technology and Management Information System moving

towards enhanced transparency and public disclosures. It will enable

providing real time information, making the internal controls more

effective and decision making efficient. To transform Pakistan Savings into

a modern entity to meet the requirements of 21

Century, it is proposed to

establish a separate Directorate of IT and MIS under DG Operations to

accelerate the process of automation. Proposed structure is at Figure 20 and

assigned functions are at F-1 in Chapter 8.

(xxxv) Manning Regional Directorates of Operations: Regional Directors

Operations at Islamabad, Karachi, Hyderabad, Lahore, Peshawar, Quetta,

Rawalpindi, and Faisalabad may be in BS-20 and may be supported by

Joint Director Operations, Deputy Directors HRM, Administration and

Assistant Chief Security Officer, Deputy Director (F&A), Deputy Director

(NST), Deputy Director IT and Support Staff and DDO. Remaining

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Regional Directorates may be headed by BS-19 Joint Directors. The support

staff may be in the rank of Assistant Directors (BS-17).

(xxxvi) Abolishing Cadre of JNSOs: CDNS at operational level is manned by low

paid employees as compared to their competitors such as banks. There are

no equivalent to JNSOs (BS-11) or ANSOs (BS-14) dealing with the

customers and operations. All services are handled by Officer level

manpower (OG-1, OG-II and OG-III). Their city-based branches are

managed by AVP level officers. Secondly, National Savings Officers do not

signal dignity of position. Thirdly, the promotions are quite slow and it

takes about 10 to 15 years to move from one rank to the other which adds

to this frustration. It is, therefore, proposed The cadre of JNSO may be

abolished and support staff may be recruited as National Savings Assistant

(BS-14).

(xxxvii) Upgrading and Redesignating Posts in CDNS: The post of Deputy NSO

may be redesignated as Deputy Assistant Director (BS-16). Likewise, post

of National Savings Officers (BS-17) may be redesignated as Assistant

Director (BS-17), Assistant Directors (BS-18) may be redesignated as

Deputy Director (BS-18), Deputy Directors (BS-19) may be redesignated as

Joint Director (BS-19) and the post of Director (BS-19) may be redesignated

as Director (BS-20). Each Wing at the headquarters may be headed by

Director General (BS-21).

(xxxviii) External Hiring in Various Pay Scales: Pakistan Savings must ensure

continuous flow of external hiring in all scales to enhance diversity and to

bring new insights to turnaround the organization. The recruitment ratios

in Pakistan Savings may be revised as proposed below after organizational

restructuring as proposed.

(xxxix) Making IT Diploma Mandatory for Future Recruitment: In future, in all

direct recruitment cases of regular Staff in BPS-14 to BPS-21, One Year or

six months Diploma in IT/Computer Science may be made mandatory

requirement in their recruitment rules as shift towards ICT is now the

game of survival.

(xl) Creation of DTL Reserve: The Ministry of Finance must create TL

Reserve equivalent to 10 percent of senior posts (Assistant Director to

Director General) which may be placed at various geographical locations

(Regional Directorates) to ensure that:

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(a) officers at all levels are sent for refresher courses;

(b) officers and staff are allowed to avail their accrued leave; and

Proposed Rules of Recruitment for Appointment

(xli) Space and Location of NSC: It may be ensured that space of all NSCs

must be in commensuration with number of clients and average daily

visitors to NSC. It is important to develop a modern outlook and provide

reasonable space to these NSCs.

(xlii) Standard Lay Out of NSCs: The Management of Pakistan Savings may

design a standard lay out for different categories of NSCs which must

include space for (a) secure vault for cash; (b) Customers Relation Officer;

(g) Security Guards. Category A and B NSC must have space to hold staff

meetings.

(xliii) Service Counters Category A and B NSCs must have at least two service

counters which may be expanded to three in NSCs where number of clients

and average daily visitors is high.

(xliv) Currently, the major workload relates to payment of profit on Pensioners

Accounts and Behbood Certificates. These two schemes combined have

1,192,571 accounts and are rising further. These customers of these two

schemes are facing long transaction time and inconvenience. Incidentally,

these customers are the senior citizens. Multiple registrations of a single

customer on different dates increase transaction time manifold and the

senior citizens have to wait in long queues, sometimes for hours, till his or

Post BPS

By Promotion By Initial Appointment

Existing Proposed

Chief Executive - - - 100%

Director General 21 100% 75% - 25%

Director 20 100% 75% - 25%

Director Legal 20 - - 100% 100%

Joint Director 19 100% 70% - 30%

Deputy Director 18 100% 60% - 40%

Assistant Director 17 70% 50% 30% 50%

Deputy Assistant Director 16 65% 50% 35% 50%

National Savings Assistant 14 75% - 25% 100%

Confidential Officer 17 100% -

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her turn is announced. It is important to make special service counters for

these clients at main NSCs, especially in urban areas.

(xlv) Survey of Current Offices and NSCs for their Renovation: Director

(Administration) CDNS may be asked to do a quick survey of all CDNS

offices including NSCs in terms of (a) Office requiring relocation to better

locations and need appropriate space; (b) offices requiring renovation and

furnishing; and (c) locations where it is cheaper to purchase land for

construction of own offices. It should then estimate total cost and prepare a

three-phases spreading over four years plan in terms of (a) immediate

requirements over one year; (b) short-term requirements over two to two

and half years; and (c) long-term requirements over four years; to carry out

these works/procurements in accordance with PPRA Rules. Ministry of

Finance must ensure allocation of funds either on the recurring side or

through PSDP.

(xlvi) Upgrading Training Facilities: The current training facilities in

Islamabad and Karachi may be upgraded in terms of infrastructure,

capacity and teaching faculty and equipment including modern computer

labs to provide trainings and refresher courses for National Savings Staff

using modern ways of leaning rather than making these training

institutions as dumping place for unwanted officer and staff.

(xlvii) Updating Training Courses, Syllabi and Appointing Professional

Trainers: All courses, entry level for different tiers as well as refresher

courses, must be revised and updated in collaboration with National

Institute of Banking and Finance which must emphasize on the application

side more than theoretical or academic content by including case studies,

real-life cases, etc. Towards this end, Pakistan Savings may also collaborate

with some of the private banks training institutions, such as, Habib Bank

Ltd and Standard Chartered Bank.

(xlviii) New Modules to be Added in Training Courses: Some of the Training

modules suggested are: (a) Change Management; (b) Management Strategy

Alignment; (c) Leading Teams Successfully; (d) Management By Objectives;

(e) Sustainable Financial Inclusion; (f) Customer Needs And

Communication Skills; (g) New Distribution Channels; (h) Branch

Management; (i) Risk Management Programme; and (j) Financial Statement

Analysis; (k) Responsible Finance Management Programme.

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(xlix) Mandatory Training for Promotion to BPS 19 to BPS-21: All Officers

must qualify (i) Mid-Career Management Course (ii) Senior Management

Course; and (iii) National Management Course to be eligible for promotion

to next pay scale.

(l) ICT Based Training Courses: ICT based training/workshops/refresher

courses should be a regular feature for all formations (Headquarters,

Regional Directorates, field formations, Audit and Inspection) Staff to keep

them aligned with up-to-date and current SOPs for IT activities/policies

and business rules.

(li) Advance Level Training of IT Officers: Advance level trainings for

officers of IT wing of CDNS should be arranged on regular basis through

well-reputed institutes to keep them up-to-date with the modern tools and

technologies and developments in the IT field besides the mandatory

training as required for a civil servant.

(lii) Preparation and Implementation of Training Calendar: Directorate of

Training may be responsible for preparing Training Calendar for each

Financial Year reflecting training schedule of entry level, refresher courses

and advance level courses for the existing and newly appointed staff.

(liii) Pricing of Products: CDNS must develop expertise in its Directorate to

set pricing of products and determining coupon rates. This Directorate may

also be responsible for periodic review and adjust pricing and coupon rates

in line with the market changes subject to approval of the Board.

(liv) Maintenance of Accounts: CDNS may also develop capacity to work out

accrued interest and unpaid interest on monthly as well as annual basis to

assess the liability scheme-wise, reporting outstanding balances scheme-

wise by year end, and reporting the outstanding principal amount by year

of issue and maturity. It will help CDNS/Pakistan in estimating or

forecasting its annual liabilities or expected outflows in interest payments

or principal payments as it matures.

(lv) Preparing Balance Sheet, Income and Expenditure Statement and Cash

Flow Statement: CDNS must develop the capacity to prepare six monthly

and annual balance sheets, Income and Expenditure Statement and Cash

Flow Statement to determine the soundness and financial integrity of the

system at each functional unit level and consolidated financial statements

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of the organization within sixty days of each six months and ninety days of

each financial year. The absence of these statements restraints the ability of

the managers and the Finance Division to measure financial resources of

the CDNS and its liabilities, the capability of the management to determine

Organization’s assets, inventory of various products, and true account of

prize bonds, etc.

(lvi) Eliminating Lag in Reconciliation: CDNS must take necessary measures to

eliminate lag in reconciliation and reporting at all levels including PPOD.

(lvii) Working Out Annual Target: CDNS, as part of budget estimates, may be

responsible for working out annual targets for the following areas in

consultation with the Ministry of Finance for seeking approval of the

Executive Committee and the Board:

(a) Net funds to be mobilized through NSS

(b) Weighted average cost of funds

environment in the country, competitive products competing with

NSS, characteristics of the underlying portfolio or patterns of

encashment or estimated liabilities in a financial year rather than

setting an arbitrary target.

(lviii) Addressing Complaints Against Frequent Changes in Coupon Rate and

Maintenance of Inventory: Many of the complaints originating at NSCs

relate to multiple coupon rate printed on the National Savings Certificates

and actual rate of return because of adjustment in rates every two months

aligned to PIBs/TBills rate determined immediately after announcement of

discount rate by the SBP which is now on bi-monthly basis. It is important

that the CDNS must equip itself with modern inventory concepts. To

resolve this issue, CDNS may opt for printing of all kind of Certificates

from the Pakistan Security Printing Press not carrying printed coupon rate.

It may be filled either with stamp or filled in with Pen.

(lix) Check Against Cheating in Coupon Rate: To ensure that customers are

not fleeced or cheated, CDNS must place new rate of return on certificates

and accounts at prominent place in each NSC to facilitate the customers

and also give wide publicity in the newspapers.

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(lx) Direction of the Federal Government: The Federal Government may, as

and when it considers necessary, issue directives to Pakistan Savings on

matters of policy and such directives shall be binding on Pakistan Savings.

If a question arises whether any matter is a matter of policy, the direction of

the Federal Government shall be final.

(lxi) Rationalizing Budget of the CDNS: The budget of CDNS may be

rationalized which is heavily skewed towards establishment charges as

well as rent payments and leave a very small percentage of the budget to

finance all other operations of CDNS. It is proposed that the budget of

Pakistan Savings may be increased gradually to take it to 1.5 to 2 percent of

net inflows, taking FY2015 as benchmark, in 3 years with the following

hard constraints:

(a) Establishment charges may not exceed 65 percent of the gross budget.

(b) Rent must not exceed 40 percent of the operational budget and the

remaining budget must be allocated to improve quality of operations

and public service delivery.

construction of own assets, renovation and furnishing may be a

special grant over and above regular budget.

(lxii) Special Dispensation to Redesign and Renovating NSCs and Offices:

Since it is not possible for the CDNS to purchase or construct properties for

NSCs and other offices all over Pakistan because of resource constraints,

CDNS may be provided special dispensation under the financial rules for

spending budgetary allocations to redesign the layout of offices and

renovate as well as furnish the rented premises. This can enhance their job

satisfaction, productivity and motivation, especially when fresh MBAs/

M.Phils are expected to join as NSOs, recruitment is underway.

(lxiii) Preparing and Notifying Delegation of Powers Instrument: The DG

HRM shall be responsible to prepare Delegation of Powers Instrument

delegating appropriate administrative and financial powers at all levels,

particularly, Director General, Regional Directors, and Directors. This

instrument must be approved by the Executive Committee, the Board and

the Ministry of Finance to avoid any audit observations subsequently.

(lxiv) Maintaining List of Current Dormant Cases: Pakistan Savings, within

ninety days, must draw up National Savings Center-wise and

Scheme/Account wise list of all dormant cases in the following format:

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NSC Date

Account

Opened

Date of

Last

Transaction

Date Since Account

is Dormant As per

SBP Regulation

Nature of Investment

(Certificates/

Accounts)

Total

Amount

Invested

Remarks

(Reasons for

being dormant)

(lxv) Drawing up Updated List of Dormant Cases in the Stock: Pakistan

Savings, based on above information, must prepare a consolidated

statement to determine number of dormant cases and total amount which

is invested to prevent any threat or vulnerability of fraud.

(lxvi) Separate Provision for Advances to the Employees in CDNS Budget:

The Banks provide facility of advances to their employees at subsidized

rates. However, it may not be possible for the Ministry of Finance to set

different mark-up for different organizations of the Government. It is

strongly recommended that Special Allocation may be made in the Budget

of Pakistan Savings for providing House Building/Purchase Advance and

Car Advance for the employees of Pakistan Savings rather them treating as

part of the Ministry’s budget. It will provide some incentive to the

employees.

(lxvii) Risk Allowance: All employees dealing with cash or cheques may be

provided Risk Allowance as is being provided in the Banks.

(lxviii) Entertainment Allowance: Entertainment Allowance of Incharge NSC

may be enhanced from Rs 100 per month to Rs 1500, Rs 1000, Rs 500

and Rs 300 for Category A, B, C and D NSCs.

(lxix) Distribution Channels/Outlets: CDNS has an elaborate distribution

structure. However, its weaknesses are that CDNS is missing from 243

Tehsils of Pakistan, majority of which are in Balochistan, Khyber

Pakhtunkhwa, Sindh and Gilgit-Baltistan. Traditionally, this network was

supported by Pakistan Post Office Department (PPOD) to expand its

outreach nationwide. However, the CDNS has suspended new sales

through PPOD because of latter’s reluctance for prompt reconciliation

which is now underway because of federal audit observations. Most

countries, as explained in Chapter 4, use different distribution channels to

achieve nation-wide outreach, such as:

(a) Payroll deductions at the workplace and web-based sale of

government securities or telephone sales or service (US, UK, Canada);

(b) ATM Machines (Japan, Malaysia);

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(d) Post-Offices (India, Sri Lanka).

(lxx) Setting up ATMs System in CDNS: The CDNS may take measures to

credit the accrued profit to the account of customers on due date rather

than customers approaching the NSCs. The Ministry of Finance may design

a scheme and allocate resources to install ATMs System of CDNS in the

short-to-medium term. It will not only facilitate the customers but will also

help in eliminating long queues and waiting clients at NSCs. India has

already undertaken a huge program for installing ATMs at a total cost of

Rs 49 billion over five years. Sri Lanka is already operating through ATMs,

so is Malaysia and UK.

(lxxi) Securing Membership of NIFT: Pakistan Savings (CDNS) may secure

membership of National Institutional Facilitation Technologies (NIFT)

which will facilitate Pakistan Savings’ designated NSCs (only major NSCs

in main Cities) to issue cheques for profit/repayment which will be treated

as Negotiable Instrument. All commercial banks and all of their branches in

major cities avail NIFT's services. As of January 2014, 38 commercial banks

and their 8382 branches in 273 major cities, and towns utilize NIFT's

services through 28 Data Centers.

(lxxii) Provisional Arrangements for Payment of Profit or Encashment: Pending

full automation and installation of ATMs facility at main NSCs, the CDNS

and the Ministry of Finance may consider the appropriateness of allowing

the clients of PBAs and BSCs to deposit their profit coupons in their

accounts at any NBP Branch. NIFT membership may allow designation

some other banks too to allow wider flexibility. NBP or CDNS itself may

forward these profit coupons to concerned NSC via NIFT for verification of

amount of profit and signatures of investors. NSC will retain profit

coupons after scrutinizing the particulars and will sent payment advice to

the concerned branch of NBP via NIFT. After receipt of profit advice, NBP

will credit Customer’s Account on the same day.

(a) NBP will claim profit amount and commission from SBP as per

prevailing procedure regarding other Government payments. Both

NBP and SBP will send a copy of these claims and payments to

Pakistan Savings for reconciliation and postings in the register.

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(b) Necessary MOU may be finalized between Pakistan Savings, NBP and

SBP to give it a legal shape. Alternately, CDNS may do on its own.

initially. In the meantime, the CDNS must work out to implement

their own system rather than relying on NBP.

(lxxiii) Allocation of Funds for Full Automation: It is extremely important that

the Ministry of Finance as well as Planning Division must allocate

substantial funds for complete automation of CDNS instead of doing it in

piecemeal. With current pace of computerization and resource allocation, it

is expected to take about 10-15 years.

(lxxiv) Upgrading Current Software on Urgent Basis to Avoid Waste of Public

Money: The assertion from CDNS IT personnel that software solutions

developed back in 2003-2004 are now outdated and are not compatible

with current technology deepens shadows of doubts about automation

process. The current software solution is unable to cope with the prevailing

requirements of financial business based on modern ICT tools and

technologies. The structure of the existing solution is so tight that it is too

hard to accommodate any new NSS product or even change in business

rules etc. Therefore CDNS cannot achieve flexibility, durability, introduce

multiple delivery channels for its valued customer and provision/linking

with other Government entities like Ministry of Finance, SBP, FBR,

Pakistan Post Office Department and Scheduled Banks etc. Further, the

existing solution is not capable of providing in true spirit, without human

intervention, the Trend Analysis, Business Intelligence and Policy or

Decision Making System. Computerization through Phase-II under

implementation since last financial year with outdated applications

developed in 2003 would be a criminal waste of resources and time. To

overcome these deficiencies, Pakistan Savings (CDNS) may shift itself to

modern “off the shelf” customizable solution that are available in market

and majority of financial entities and commercial banks are using or the

tailor made software after due deliberations and experts opinion or

advice.

(lxxv) Provision for On-Line Connectivity and Integrated System: For this,

Ministry of Finance must seek/allocate additional funds to complete full

automation within next three years with state of the art software

applications. Full automation of Pakistan Savings (CDNS) with online

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integration is expected to: (a) improve financial control to compete

technology driven Financial Market; (b) ensure effective policy decisions;

decrease workload on National Savings Staff; and (f) obtain uniformity of

business.

(lxxvi) Replacing the Current Architecture for Automation: The current

Architecture is de-centralized i.e.; every NSC is a separate island; hence it

will be very difficult for CDNS to introduce new modern multiple delivery

channels e.g ATM for its valued customers. To achieve all this new

Centralized/Centralized-cum-Distributed Architecture needs to be

established by CDNS after the brain storming sessions with the domain

experts to be hired in AP-CDNS, Phase-II and experts of financial Market in

collaboration with IT & Operations wings of CDNS.

(lxxvii) Establishing A Data Center and Disaster Recovery Site: A Data Center

and Disaster Recovery Site managed, maintained and operated by Domain

Experts needs to be established preferably at the Government owned

building.

(lxxviii) Close Coordination between IT Wing and Scheme Wing of Directorate

Operations: To keep uniformity in the decisions and policy making with

regards to core-business activity of CDNS, the Scheme Wing & IT Wing

should be closely coupled i.e.; the Hierarchy of both the wings should be

maintained in such a way that the one reinforces the efforts/activities of

other under the supervision/guidance of single head or any other suitable

mechanism.

(lxxix) Funds for Maintenance of ICT Set UP: Availability of sufficient funds on

yearly basis for upkeep, maintenance, Service, support, troubleshooting of

HW, CI, SW, and Licenses etc. in short for all the ICT setup.

(lxxx) Addressing Internal Resistance to Automation: It is important to

identify and resolve the internal organizational factors that are affecting the

sustainability of an Information System (IS) implementation within CDNS.

Ownership of IT system by NSS staff at all levels is a key to success for IS

sustainability. It is vital to motivate and incentivize the NSS Staff to reduce

lack of understanding of internal organizational factors that influence IS

implementation sustainability.

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(lxxxi) Security of IT System: Fool proof arrangements must be in place to

preserve technology and assets of IT set up.

(lxxxii) Creation of IT Post on Recurring Side: Ministry of Finance must act upon

the recommendations of Planning Commission addressed to Secretary

Finance vide its O.M. No. 3 (36)/IT/PC/38 dated: 21-Feb-2014 for the

creation of posts as approved in PC-1(Phase-1) at the earliest on the

recurring side. According to Planning Commission, “creation of the said posts

will help the CDNS in providing the continuity and sustenance to the

Automation”. There is a dire need of recruitment of permanent/regular IT

staff for carrying out the IT activities/operations in a successful manner

and for the sustainability and availability of the Automation in CDNS.

These posts need to be created on permanent basis in relation to the

proposed structures of Directorate of IT, Regional Directorates and NSCs to

sustain automation, else, CDNS will continue to hide behind lack of IT

trained manpower which will delay the full automation.

C. Proposed Medium Term Measures ( 0 to 18 Months)

(i) Reforming National Savings Schemes: While NSS plays a key role in

mobilizing financial savings in the economy and one of the major

instruments for deficit financing, there is an urgent need for reforms in this

area. Specifically, these reforms should be aimed at: (1) making them more

attractive instruments as is done in many other countries; (2) making them

tradable; and (3) upgrade CDNS infrastructure by utilizing IT services. Given

the huge size of investments in NSS, a restructured and well-equipped

CDNS can strategically be used to deal with market failures of certain nature,

such as promoting outreach of financial services to remote areas.

(ii) Draft Pakistan Savings Bill 2016 may have been approved by the Cabinet,

tabled in the Parliament for seeking its approval as well as its enforcement

w.e.f. July 1, 2017.

(iii) Re-Launching NSS Overseas: NSS were launched in Dubai, Oman and

Bahrain through Habib Bank Ltd. and United Bank Ltd., in October 2002

with the permission of Fiscal and Monetary Authorities of these countries.

The objective was to encourage savings and investment amongst Pakistani

expatriates to invest in NSS rather than using their earnings in consumption.

The CDNS got an investment of Rs 4.7 billion during October 2002 to January

2005. Thereafter, the banks lost interest in the sale of NSS as these banks

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were privatized during the same period and got more interested in their

earnings through Pakistan Remittance Initiative. There is a need to exploit

this window of opportunity and re-launch NSS schemes in Middle Eastern

Countries to encourage savings. Similar arrangements can be done through

National Bank of Pakistan or the CDNS can appoint sale agents as described

in Chapter III of the Hand Book of National Savings-Vol.II (pages 161-170).

The Ministry of Finance may constitute a Committee comprising the

Additional Finance Secretary (Budget), DG PRI , State Bank of Pakistan, DG

CDNS and SVP of National Bank of Pakistan to review the whole scheme,

identify the reasons for slowing down of interest in NSS and make

recommendations for its re-launch after considering the pros and cons. This

will primarily help in capturing the earning of Pakistan expatriates moving

through conceivably through Hawala.

(iv) Establishing National Savings Fund: It is proposed to establish National

Savings Fund in Public Account of India or the State Bank of Pakistan. All

deposits under National Savings Schemes and all withdrawals by the

depositors may be made out of the accumulations in the Fund. The balance

in the Fund may be invested in Government Securities (PIBs and Treasuries)

as decided by the Federal Government. This will bring more transparency in

ascertaining the cost of raising domestic debt and deficit financing. The

liability of outstanding balances under various National Savings Schemes at

the close of financial year preceding establishment of such Fund may be

borne by the Federal Government, the main user of these funds, by treating

the same as investment of NSF in securities of the Federal Government.

Proposed Medium to Long Term Measures (0 to 24 months)

(i) Development of Infrastructure: Pakistan Savings and the Ministry of

Finance may take necessary measures to acquire and develop infrastructure

for Pakistan Savings Headquarter and Regional Directorates in phases over

next ten years rather than continuing in rented premises as follows:

(a) Phase-I Construction of building on Mauve Area

and Rawalpindi plots as proposed below.

(b) Phase-II Lahore, Karachi, Quetta and Peshawar

Regional Directorates.

Faisalabad. Abbottabad and Kohat Regional Directorates

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(d) Phase-IV Larkana, Sukkur, Sargodha, Bahawalpur

Regional Directorates.

(ii) These Regional Directorates buildings may also accommodate model

National Savings Centers. In addition, model National Savings Centers may

be constructed at Mirpurkhas, Swat, Dera Ismail Khan and Gujarat during

Phase-IV.

(iii) Construction of Pakistan Savings House: Efforts were made to encroach

and occupy Rawalpindi and Mauve Area plots. If immediate steps are not

taken to implement proposals made above, it is likely that these properties

may get encroached and occupied. It is strongly recommended that Ministry

of Finance may take up the case for allocation of funds to construct multi-

story Pakistan Savings House on the property owned by CDNS in Mauve

area in Islamabad, on priority basis, which may not only accommodate the

requirements of proposed structure of Pakistan Savings but also the Regional

Directorates of Operations, Audit and Inspection and Model National

Savings Center, Islamabad.

(iv) Construction of Regional Directorates in Rawalpindi:Similarly, Ministry of

Finance must make efforts to construct Multi-Story building on the plot

owned by CDNS in Rawalpindi which may accommodate residential

National Savings Training Institution, Regional Directorates (Operations,

Audit and Inspection) and model Rawalpindi National Savings Center.

Conclusion

61. To sum up, it is reiterated that the CDNS is a vital financial institution

dealing with a stock of savings instruments valuing closer to Rs 3,000 billion

and is custodian of private households’ savings. It cannot continue to be

administered as a Section of the Ministry of Finance through part-time Head

of the Institution with moribund management practices. There are far too

serious challenges facing the CDNS currently including huge pendency of

audit as well as recovery of embezzled money and reconciliation of

transactions.

62. The Committee is of the firm view that current management structures can

no longer transform the CDNS into a professional and modern organization. It must

be converted into an autonomous organization rather than continuing as Attached

Department governed by a Board of Governors comprising professional governors

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from public and private sectors and managed by a professional Chief Executive

Officer. The current structures at the Headquarters as well as the regional and field

formations require major changes as proposed at Figures 11 to 20 in Chapter 7 along

with other adjustments proposed as short-term and medium to longer term

measures.

63. The Ministry of Finance must take immediate measures for full automation

of Headquarters, Regional Directorates and NSCs in an integrated manner as

proposed above for online transactions rather than doing it in phases for three

reasons: (i) it will take atleast 10 to 15 years the way the CDNS and Ministry of

Finance are currently proceeding for computerization; (ii) by the time it is

completed, the very first phase will become obsolete, which is already redundant,

because of outdated solutions developed in 2003-2004 and the CDNS will continue

with the manual system; and (iii) it will help in determining proxy accounts,

dormant accounts and in clubbing multiple accounts maintained by the same

investor in different branches of NSCs. If it is true that the current software solution

is not aligned with the technology available as informed by IT Department of

CDNS, it is important to update the solutions in commensuration to available

technology and requirements of the CNDS before procurement of hardware.

64. The Committee is of the view that strong, vibrant and unblemished

strategic leadership on regular rather than adhoc basis is vital for CDNS (Pakistan

Savings) to ensure effective management, cultural transformation, coordinating

development of new management structures, discussed supra, to support enrichment

of public services. It is felonious to let this important financial institution, dealing

with private households’ savings and handling a portfolio of Rs 3000 billion,

continually managed on part-time and adhoc basis.

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Chapter 1

Introduction

The Wafaqi Mohtasib (Federal Ombudsman), taking cognizance under Article

2 (2) of the Establishment of the Office of Wafaqi Mohtasib (Federal Ombudsman)’s

Order, 1983, of large number of complaints appearing in the print media against

Central Directorate of National Savings (CDNS) and those being filed in the Head

Office and the Regional Offices of Wafaqi Mohtasib Secretariat, was pleased to

constitute a Committee under Article 9 (1) read with Articles 18 and 19 of the said

Order on July 29, 2015 comprising the following (Appendix-1):

1. Mr. Abdul Wajid Rana

Member, Federal Public Service Commission Chairman

Former Federal Secretary Finance and Economic Affairs

2. Mr. Shahid Rashid

Chairman, Intellectual Property Organization Member

Former Secretary Establishment Division

3. Mr. M. Ayub Khan Tarin

Senior Adviser, Wafaqi Mohtasib Secretariat Member

Former Additional AGP and Additional Finance Secretary

4. Mr. Ahmad Owais Pirzada

Member Competition Appellate Tribunal Member

Former Additional Finance Secretary and

Former Director General CDNS

5. Mr. Waqar Ahmad

Joint Secretary Finance Division/ Member

Acting Director General, CDNS

6. Mr. S.M.Tahir

Senior Adviser, Wafaqi Mohtasib Secretariat Member/Secretary

Former Secretary, Wafaqi Mohtasib Secretariat



Report has been drafted by the Chairman of the Committee

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

2. Mr. Zafar Shaikh, former Director General CDNS could not attend meetings

as he was out of the country. However, he was consulted through email and

meeting at Karachi.

Provisions of Establishment of the Office of Wafaqi Mohtasib (Federal

Ombudsman)’s Order 1983 and the Notification

3. Article 9 (1) provides that “The Mohtasib may on a complaint by an

aggrieved person, on a reference by the President, the Federal Council or the

National Assembly, as the case may be, or on a motion of the Supreme Court or a

High Court made during the course of any proceedings before it or of his own

motion, undertake any investigation into any allegation of maladministration on

the part of any Agency or any of its officers or employees.”

4. Article 18 provided that “The Mohtasib may, whenever he thinks fit,

establish standing or advisory committees at specified places with specific

jurisdiction for performing such functions of the Mohtasib as are assigned to them

from time to time and every report of such committee shall first be submitted to the

Mohtasib with its recommendations for appropriate action.”

5. Article 19 provides that “The Mohtasib may, by order in writing, delegate

such of his powers as may be specified in the order to any member of his staff or to

a standing or advisory committee, to be exercised subject to such conditions as may

be specified and every report of such member or committee shall first be submitted

to the Mohtasib with his or its recommendations for appropriate action.”

6. Under Article 2 (2) ‘Maladministration’ includes:

(lxxi) a decision, process, recommendation. Act of omission or commission

which-

(a) is contrary to law, rules or regulations or is a departure from

established practice or procedure, unless it is bonafide and for valid

reasons ; or

(b) is perverse, arbitrary or unreasonable, unjust, biased, oppressive, or

discriminatory ; or

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(d) involves the exercise of powers, or the failure or refusal to do so, for

corrupt or improper motives, such as, bribery, jobbery, favouritism,

nepotism and administrative excesses ; and

(ii) neglect, inattention, delay, incompetence, inefficiency and inaptitude, in the

administration or discharge of duties and responsibilities.”

7. Prima facie, Article 9 (1) read with Article 9 (3) seems more germane to this

study that provides “For carrying out the objectives of this Order and, in particular

for ascertaining the root causes of corrupt practices and injustice, the Mohtasib may

arrange for studies to be made or research to be conducted and may recommend

appropriate steps for their eradication” rather than Articles 18 and 19 of the said

Order.

Terms of Reference for the Study

8. The Terms of Reference of the Committee was as follows:

(a) To conduct thorough study of the organizational set up of CDNS.

(b) To identify institutional, procedural and systemic weaknesses which

hinder the efficient delivery of service to the clients.

within the Department.

(d) To make recommendations for smooth, effective and efficient

functioning of the Department in accordance with the objectives for

which it was established and to improve service delivery.

(e) Any other matter having direct bearing on the working of CDNS.

9. The Committee was required to submit the report on September 15, 2015.

However, the submission of Report took longer than expected because of incisive

assessment of CDNS, comparative study of savings organizations in some

developing and developed countries and official engagements of the Committee’s

Chairman and Members.

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Chapter 2

Methodology

10. The Committee held meetings on the following dates:

(a) 13

August, 2015 at Federal Ombudsman Secretariat

(b) 20

August, 2015 at CDNS HQ

September, 2015 at CDNS HQ

(d) 16

September, 2015 at CDNS HQ

(e) 30

November, 2015 at CDNS HQ

(f) 15

December, 2015 at Wafaqi Mohtasib Secretariat, Islamabad

11. Following officers of the Ministry of Finance and CDNS briefed the

Committee on various aspects including the working of CDNS as well as Regional

Directorates and NSCs, issues and challenges facing the CDNS, general complaints

against the CDNS and future vision of the Ministry regarding CDNS, in these

meetings:

(a) Dr. Shujat Ali, Additional Secretary (Budget), Ministry of Finance

(b) Mr. Waqar Ahmad, Acting Director General, CDNS

(d) Mr. Muhammad Mateen, Joint Director, Zonal Inspection & Accounts

(e) Mr. Muhammad Khalil, Director (Admn), CDNS

(f) Mr. Faisal Saleem Malik, Regional Director, Islamabad RDNS

12. The Committee held detailed discussions with these officers to gain an

insight into the functioning of the CDNS, constraints within which it is performing

its functions, operational environment for discharging duties and potential causes

of public complaints. The Officers also highlighted the strengths of CDNS which is

sustaining it.

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13. The Committee also visited the National Savings Center, Civic Center,

Islamabad, without prior notice to get a feel of the operations of a NSC and to hear

view point of the clients present in the waiting area of the Saving Center.

14. Mr. Zaheer Abbas and Mr. Ghafoor Baloch of the CDNS Staff assisted the

Committee diligently and efficiently in providing the required data. Some

employees of the CDNS also circulated a written memorandum regarding

operations of CDNS, causes of mal-administration and suggestions.

15. The Committee also had the chance to look at earlier studies done about

CDNS listed below:

(i) Special Report of Wafaqi Mohtasib, July 1987

(ii) Report on Institutional Reform and Strengthening the CDNS, by Sidat

Hyder Morshed Associates

(iii) Report of the Committee on Public Complaints and Causes of

Concern in respect of NSCs Faisalabad, July 2015

(iv) Hand Book of CDNS

16. The Committee acknowledges and appreciates the support and facilitation

extended by the officers of CDNS in conducting this study and finalizing the report.

Special appreciation is due to the officers listed supra who provided a candid

assessment of the situation and M/s Zahees Abbas and Ghafoor Baloch who

provided necessary data. The Committee sincerely hopes that this report of the

Committee, constituted by the Wafaqi Mohtasib, will help in moving forward on

the path towards a dynamic and more accountable CDNS while improving public

service delivery.

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Chapter 3

Role of Savings in an Economy and NSS

17. Scottish local Parish Minister Dr. Henry Duncan started world’s first

savings movement in 1810 in Scotland. National savings comprises of: (i) Private

savings (the portion of households’ income that is not used for consumption or

paying taxes), (ii) Corporate savings (the earnings of corporate sector which are

retained for investment); and (iii) Public saving (Tax revenue less government

spending). The gap between investment and national savings is filled by Net

foreign savings (the difference between inflows of capital or loanable funds from

foreign savers minus the outflows from the country). The savers provide these

funds to the borrowers through financial intermediaries (Banks and Mutual Funds)

by investing in the financial markets (Stock and Bond). National Saving is vital for

the economic growth and sustainable development.

18. Low level of saving rate in Pakistan is one of the most serious constraints

to sustainable economic growth and development. While increasing savings-

investment gap highlights country’s dependence on foreign savings, public sector

dis-savings reflect negative primary revenue surplus.

19. A cross-country comparison (For details, see Table 1) shows Pakistan having

lowest national savings as percentage of GDP as compared to Bangladesh, India

and Sri Lanka while China has the highest savings rate. Specifically, Pakistan’s

national savings as percent of GDP declined from 20.8 percent in FY2003 to 11

percent in FY2008 before recording some improvements in FY2009 onwards. This

improvement is entirely attributed to quantum leap in workers’ remittances, which

is evident from increasing gap between national and domestic savings (For details,

see Table 2). The significant decline in domestic savings from 18.1 percent in FY2002

to 8.0 percent of GDP in FY2014, is primarily attributed to: (i) sharp reduction in

overall economic activities and (ii) strong inflationary pressures post-FY2007 which

eroded household purchasing power. Generally, however, the major reasons for

low savings in Pakistan include a high dependency ratio, poor inflation adjusted

returns on financial instruments (especially on deposits), cultural factors such as

heavy expenses on marriages, social functions and religious ceremonies, low level

of financial deepening and preference to use cash to settle majority of transactions.

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Likewise, widening gap between total investment to GDP and national savings to

GDP ratio implies that the real problem lies with the level of savings in the

economy.

Table 1. Country Comparison of National Savings As percent of GDP

2003 2004 2005

2006

2007

2008

2009

2010

2011 2012 2013

2014

Bangladesh 24.5 25.4 25.8

27.7

28.7

30.2

29.6

30.0

28.9 29.2 29.5

30.5

Canada 21.2 23.0 24.0

24.4

23.7

18.6

19.0

21.0 21.0 21.0

China 43.0 46.0 47.0

50.0

52.0

51.0

49.0 50.0 50.0

France 19.1 19.0 18.5

19.1

19.3

19.1

19.2

19.0

21.0 20.0 20.0

Germany 19.5 22.0 22.2

23.9

25.9

26.0

26.3

25.0

27.0 26.0 26.0

India 26.3 29.8 31.7

34.2

35.7

37.7

32.0

33.7

33.7 31.4 30.1

30.5

Italy 19.8 20.3 19.5

19.6

20.0

18.2

18.7

17.0

18.0 18.0 19.0

Japan 26.1 26.8 27.2

27.7

28.8

26.6

23.2

23.0

22.0 22.0 22.0

Pakistan 20.8 17.9 17.5

15.2

14.0

11.0

12.0

13.6

14.2 13.0 13.9

14.1

Sri Lanka 21.5 22.0 23.8

22.3

23.3

17.8

23.7

25.3

22.1 24.0 25.8

27.0

United Kingdom 15.1 15.0 14.6

14.2

15.6

14.9

14.0

15.0 13.0 13.0

United States 12.9 13.4 14.4

15.0

13.7

14.8

15.2

15.0

16.0 18.0 18.0

Source: State Bank of Pakistan, World Bank

20. Private sector has a predominant contribution in the overall savings. It

accounts for 90 to 92 percent of national savings while public sector savings in

terms of GDP has been declining. Public sector has witnessed dis-savings which is a

reflection of weak fiscal control as public savings primarily comprise of the revenue

surplus of the government.



Table 2. Structure of Savings and Investment (% of GDP)

1973 1981 1991

1999

2003

2008

2009

2010

2011 2012 2013

2014

National Savings 10.7 15.1 14.2

11.7

20.8

11.0

12.0

13.6

14.2 13.0 13.7

14.1

Foreign Savings

-2.1 -3.7 -4.8

-3.9

3.8

-8.2

-5.5

-2.2

0.1 -2.1 -1.3

-1.0

Domestic Savings 10.0 8.5 12.7

12.9

17.6

11.5

9.4

9.8

9.7 7.8 8.7

8.0

Total Investment 12.8 18.8 19.0

15.6

16.9

19.2

17.5

15.8

14.1 15.1 15.0

15.1

Saving-Investment

Gasp

2.1 3.7 4.8

3.9

-3.8

8.2

5.5

2.2

-0.1 2.1 1.3

1.0

Source: State Bank of Pakistan, Economic Survey of Pakistan



21. Financial Savings

nose-dived to 3.0 percent of GDP in FY2009 against 7.6

percent in FY2005 and 6.3 percent of GDP in FY2008. The sharp reduction is

ascribed to a variety of factors including high inflationary pressures prevalent

during the year, increase in unemployment, slowdown in overall economic



Financial savings include changes in bank deposits, investments in National Saving Schemes (NSS), currency

in circulation (CIC), deposits of NBFIs, investments in mutual funds and General Provident Fund (GPF) during

the year.

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activities and substantial reduction in the value of financial instruments especially

of mutual funds. The composition of financial savings reveals savers’ increased

preferences for low risk and fixed income financial instruments. Specifically, net

investment in NSS and currency in circulation witnessed YoY rise of 24.3 percent

and 17.9 percent in 2009 respectively. Imposition of floor of 9,144 points on the KSE-

100 index for almost 4 months, temporary liquidity stress in the banking sector, and

the financial crisis at international level played an important role in increasing

uncertainty in the domestic financial sector. For details, see Table 3.

Table 3: Trends and Structure of Financial Savings in Pakistan

FY2001 FY2005 FY2009 FY2012 FY2013 FY2014 FY2015

Billion Rupees

Accumulated Savings (Stock)

2,387

4,206

6,732

9,812

11,344 12,660 14,281

Deposits of Banking Sector 1,139

2,405

3,980

5,959

6,909 7,777 8,714

Investment in NSS 762

940

1,359

1,700

2,006 2,156 2,417

Currency in Circulation 376

666

1,152

1,674

1,938 2,178 2556

Deposits of NBFIs 80

16 16 16

Mutual Funds 12

125

182

410

402 452 492

GP Fund 18

73 81 86

Accumulated Savings (Growth in Percent)

Accumulated Savings (Stock)

7.8

13.4

6.4

14.4

15.6 11.6 12.8

Deposits of Banking Sector 11.4

21.8

2.5

14.9

15.9 12.6 12.0

Investment in NSS 6.5

-4.5

24.3

10.1

18.0 7.5 12.1

Currency in Circulation 5.3

15.1

17.9

11.5

15.8 12.4 17.4

Deposits of NBFIs -12.3

3.4

-47.6

16.5

10.6 1.3 2.5

Mutual Funds -5.9

21.6

-43.3

41.4

-2.0 12.4 8.8

GP Fund -2.0

1.0

-5.4

23.0

34.1 10.1 6.6

Accumulated Savings (Percent of GDP)

Accumulated Savings (Stock)

60.3

64.4

49.8

48.9

50.7 50.5 52.2

Deposits of Banking Sector 30.4

37.0

29.0

29.7

30.9 31.0 31.8

Investment in NSS 18.3

14.5

10.4

8.5

9.0 8.6 8.8

Currency in Circulation 9.0

10.2

8.8

8.4

8.7 8.7 9.3

Deposits of NBFIs 1.9

0.7

0.2

0.1

0.1 0.1 0.1

Mutual Funds 0.3

1.6

1.2

2.0

1.8 1.8 1.8

GP Fund 0.4

0.3

0.3 0.3 0.3

Flow As Percent of GDP

National savings

16.5 17.5 12.0 13.0 13.9 13.7 14.5

Domestic Savings

17.8 15.4 9.4 7.8 8.7 8.0 8.4

Financial savings (Flows)

4.4 7.6 3.0 6.2 6.8 5.2 5.9

Deposits of scheduled banks

3.1 6.6 0.7 3.9 4.2 3.5 3.4

Investments in NSS

1.1 ‐0.7 2.0 0.8 1.4 0.6 1.0

Currency in circulation

0.5 1.3 1.3 0.9 1.2 1.0 1.4

Deposits of NBFIs

‐0.3 0.0 ‐0.2 0.0 0.0 0.0 0.0

Mutual funds

0.0 0.3 ‐0.9 0.6 0.0 0.2 0.1

GP fund

0.0 0.0 0.0 0.1 0.1 0.0 0.0

Source: State Bank of Pakistan



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A. Significance of CDNS in Mobilizing Private Savings

i. Avenues for Investment for Household or Private Savings

22. Personal savings are invested in a variety of ways, including investment in:

(a) National Saving Schemes

(b) Bank Deposits: Fixed Term, Savings Deposits

(d) Life Insurance Policies

(e) Business Equity and Corporate Bonds---both through acquisition of

securities listed on the stock exchange as well as direct investment in other

private businesses

(f) Real Estate

(g) Contractual Retirement Savings---Individual interests in provident, gratuity

and pension funds

(h) Money Accounts for investment in PIBs and T-Bills

ii. Savings Instruments of CDNS

23. Products offered by the CDNS can be categorized as follows:

(a) Fixed Income Guaranteed Products: Regular Income Certificates, Saving

Accounts, Special Savings Accounts, Defence Savings Certificates, Special

Savings Certificates

(b) Index Linked Products (with capital guarantees): None

(d) Welfare Products: Behbood Savings Certificates, Pensioners Benefit

Accounts

24. These NSS instruments are non-tradable long-term bonds and saving

certificates which meet the savings and investments needs of various eligible

investors including pensioners, small savers of lower income groups, particularly

the fixed income group. These saving instruments have different maturity profiles,

ranging from 3 years to 10 years, with varying interest rates. The government also

launched the first-ever listed, scrip-less and tradable National Savings Bond (NSB)

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on January 11, 2010 with a maturity of 3, 5 and 10 years but was not a success

because of much established Pakistan Investment Bonds (PIBs). In addition to

medium and long-term certificates, the CDNS offers savings accounts both checkable

and non-checkable. The CDNS also offers a bearer instrument, National Prize Bond to

tap the savings of the informal sector. For details, see Table 4.

Table 4. Profile of Selected NSS Instruments

Charateristics DSCs SSCs RICs BSCs PBA

Launched in

1966 1990 1993 2003 2003

Maturity Period

10 Years 3 Years 5 Years 10 Years 10 Years

Minimum Holding

Period

1 Month 1 Month - - -

Early Encashment

Penalty

No Profit is

payable if

encashed before

completion of

one year

No Profits is

payable if encashed

before completion

of each period of

six months

0.5 to 2% of

the face

value

0.25 to 1%

of the face

value

0.25 to 1%

of the face

value

Profit Payments

Bullet bonds Bi-Annually Monthly Monthly Monthly

Zakat

Compulsory unless

filed declaration

Compulsory unless

filed declaration

Exempted Exempted Exempted

Withholding Tax

@ 10% @ 10% @ 10% Exempted Exempted

Min. Investment

Amount

Rs 500 Rs 500 Rs 50,000 Rs 5,000 Rs 10,000

Max Investment Limit

No Limit No Limit No Limit Rs

4,000,000

Institutional

Investment

Allowed* Allowed* Allowed* Not

Allowed**

Not

Allowed***

*Excluding Banks and Insurance Companies

**Only widows and senior citizens aged 60 years and above are eligible to invest in this instrument

***Only Pensioners of Federal, Provincial Governments, Government of Azad Jammu and Kashmir, Armed Forces,

Semi Government and Autonomous Bodies are allowed to invest

DSC- Defense Saving Certificates RIC-Regular Income Certificates PBA-Pensioners Benefit Account

SSC-Special Saving Certificates BSC-Behbood Saving Certificates

25. The funds raised through NSS other than the Prize Bonds are classified as

Unfunded debt as both the inflows from NSS and payments of NSS are

unpredictable whereas the Prize Bonds are part of Permanent Debt. This issue

emanates from the nature of NSS, the market it serves (retail investors) and pricing

mechanism, in particular: (i) the schemes offered by the NSOs are not for a fixed

size of issue but are available on tap to potential investor, i.e. anyone eligible to

invest in a scheme; (ii) all schemes have premature encashment option, though the

schemes are designed to encourage continuity to full maturity; and (iii) payment of

interest and principal are not made automatically but dependant upon the investor

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visiting the NSC concerned or post office to collect the amounts due. Prize Bonds

are bearer certificates with pre-determined award for each denomination of Bonds.

iii. Share of Various Savings Schemes

26. Highly attractive rates of return on NSS made them a popular avenue of

investment not only for the general public but also for corporate investors. The

popularity of NSS instruments rose to the extent that every year the government

received a net inflow of private funds from NSS after servicing the NSS and

repaying the principal from gross receipts. The introduction of Pensioners’ Benefit

Accounts (PBAs) and Behbood Saving Certificates (BSCs) during FY2003 and

FY2004 respectively with return significantly higher than other NSS instruments

attracted many eligible customers as well as allowing institutional pension funds

investment which helped in mobilizing savings from October 2006 onwards.

27. The share of Defence Saving Certificates has decreased from 67.7 percent

in 1971 to 12.4 percent of the total NSS portfolio in 2015. Likewise, share of

Regular Income Certificates has declined from 26.8 percent in 2000 to 15.7 percent.

Concomitantly, share of Behbood Saving Certificates has increased to 26.0 percent

and that of Pensioners’ Benefit Accounts share increased to 8.6 percent. The latter

two schemes are more popular because of high interest rates and these targeting the

specific segment of the retail investors’ market such as pensioners, widows and old-

age investors. The share of BSC and PBA is likely to increase further as the

investment ceiling has been enhanced from Rs 3 million to Rs 4 million effective

from July 1, 2015. For details, see Table 5.

Table 5. Share of Various NSS Instruments in Outstanding NSS Stock (%)

* FY61 FY71 FY80 FY90 FY00 FY05 FY10 FY15

1. Certificates 35.0 67.7 70.8 70.3 91.9 86.4 79.9 73.7

Defence Saving Certificates 67.7 36.5 26.7 39.2 39.1 16.6 12.4

Special Savings Certificates 15.5 5.3 25.8 25.5 26.0 19.6

Regular Income Certificates 26.8 11.0 10.0 15.7

Behbood Savings Certificates 10.7 27.2 26.0

Khas Deposit Certificates 34.2 0.06

National Deposit Certificates 35.0 18.8 4.1 0.0 0.0

2. Accounts 65.0 32.3 29.2 29.7 8.1 8.3 10.6 26.3

Pensioners’ Benefit Accounts 5.3 9.5 8.6

Total (1+2+3) 100 100 100 100.0 100.0 100.0 100.0 100.0

NSS Stock (Billion Rupees) 0.760 2.298 9.345 131 634 776 1,351 2,417

Prize Bonds 0.240 1.290 24.854 81 164 236 523

Source: SBP, Economic Survey of Pakistan

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iv. Rates of Return on NSS

28. Rates of return differ according to NSS maturity period, mode of repayment

of principal, frequency of profit payments, tax treatment, etc. Furthermore, in the

absence of secondary market for NSS, most of the certificates carry early

encashment facility. For details, see Table 6.

Table 6. Return on Bank Deposits, Government Securities and NSS Instruments

National Savings Schemes

Rate in %

NSS

Stock

PIB/FIB$

Rate in %

Banking Sector Deposits

Rate in %

DSC SSC RIC BSC Avg. (Bln Rs) 3Y 5Y 10Y Savings 1Y 3Y 5Y Overall

FY95

16.0 16.0 219 13 14 15 7.3 8.0 11.8 14.7 8.2

FY96 18.0 18.0

262 13 14 15 7.3 8.2 12.1 14.9

8.2

FY97

18.0 16.3 15.6 16.7 322 13 14 15 7.4 8.3 12.4 14.9 8.5

FY98 18.0 16.3 18.0 17.4

425 13 - 15 7.4 8.8 12.1 14.0 8.4

FY99

16.0 14.3 16.0 15.4 557 15 6.9 9.4 10.1 12.3 8.0

H1-FY00

16.0 12.3 16.0 14.8 592 6.3 8.5 9.3 11.2 7.3

H2-FY00

15.0 12.3 14.0 13.8 652 5.8 7.8 8.7 10.4 6.6

FY01

14.0 11.2 12.5 12.6 694 12.5 12.9 14 5.6 8.2 8.9 10.0 6.5

H1-FY02

15.0 12.4 12.5 13.3 689 11.6 12.1 12.5 4.6 8.3 9.0 9.4 5.6

H2-FY02

14.1 12.4 12.5 13.0 792 8.8 9.8 10.6 3.5 7.2 8.2 8.7 4.6

H1-FY03

11.6 10.5 10.6 10.9 779 6.7 7.3 8.1 3.5 5.9 7.2 7.7 2.1

H2-FY03

10.0 8.7 9.1 9.3 909 2.9 3.6 4.8 1.7 3.1 3.8 4.7 2.1

H1-FY04

8.5 7.7 7.7 10.1 8.5 844 4.0 5.0 6.2 1.3 2.6 3.1 3.4 1.6

H2-FY04

8.0 7.2 7.0 10.1 8.1 899 4.4 5.4 7.4 1.3 2.7 3.0 3.2 1.3

FY05

8.2 7.0 6.8 10.1 8.0 854 1.0 2.7 3.0 3.2 1.3

H1-FY06

9.5 7.0 8.9 11.0 9.1 775 1.7 4.8 5.5 5.0 2.6

H2-FY06

10.0 8.6 8.9 11.5 9.8 882 9.5 9.7 9.9 1.7 5.3 5.2 5.6 2.7

H1-FY07

10.0 9.3 9.2 11.5 10.0 903 9.7 10.0 10.5 1.9 6.0 7.1 6.0 3.4

H2-FY07

10.2 9.3 9.5 11.6 10.2 940 9.3 9.6 10.1 2.1 6.8 7.2 6.3 3.5

H1-FY08

12.2 9.3 9.5 11.6 10.7 971 9.7 9.8 10.2 2.1 6.9 6.7 7.2 3.6

H2-FY08

12.2 11.3 11.5 13.6 12.1 1020 12.3 13.4 4.9 7.3 8.6 8.7 5.6

H1-FY09 12.2 14.5 15.0 16.8 14.6

1069 13.7 14.6 5.0 8.4 8.5 9.1 6.0

H2-FY09

12.2 13.2 13.6 16.1 13.8 1271 12.5 12.4 12.6 5.1 8.5 9.6 9.1 6.5

FY10

12.2 11.7 12.0 14.2 12.5 1456 12.3 12.4 12.4 5.0 8.2 9.1 8.9 8.6

H1-FY11

12.6 12.1 12.4 14.6 12.9 14.17 14.26 14.25

H2-FY11

13.55 12.4 13.44 15.36 13.69 1544 13.97 14.03 14.07

Q1-FY12

13.55 12.4 13.44 15.36 13.69 12.08 12.11 12.15

Q2-FY12

12.68 11.6 12.60 14.40 12.82 12.40 12.67 12.70

Q3-FY12

11.90 11.8 11.76 13.86 12.33 12.50 12.89 13.10

Q4-FY12

12.33 11.9 12.12 14.28 12.66 1677 12.69 13.08 13.36

Jul-Aug FY13

12.68 10.7 12.36 14.64 12.60 11.27 11.55 12.03

Aug-Oct FY13

11.50 9.9 11.04 13.50 11.49 10.38 10.94 11.42

Oct-Dec FY13

11.04 9.7 10.56 12.96 11.07 10.35 10.93 11.42

Jan-Jun FY13

10.84 8.8 10.36 12.72 10.67 2006 10.01 10.38 11.07

Q1-FY14

10.36 10.6 9.48 12.24 10.67 10.33 10.78 11.53

Q2-FY14

11.61 11.4 11.22 13.44 11.92 11.62 12.09 12.51

H2-FY14

12.26 11.6 11.88 14.04 12.44 12.09 12.56 12.87

Q1-FY15

12.26 11.4 11.88 14.04 12.44 12.35 12.75 13.16

Oct-Nov-FY15

12.75 11.6 12.30 14.04 12.67 12.37 12.96 12.44

Dec14-Jan 15

11.08 9.6 10.15 12.72 10.89 10.40 10.75 11.61

Feb-Mar15

9.50 8.2 8.95 11.28 9.48 8.50 9.07 9.76

Apr-May15

8.92 7.6 8.23 10.80 8.89 7.76 8.37 9.31

Jun-Jul 15

8.68 6.8 7.61 10.56 8.41 2375 7.89 8.88

Aug-Sep 15

9.15 7.4 8.52 11.04 9.03 7.54 8.51 9.40

1 Oct-Nov 30

8.87 6.8 7.85 10.80 8.58 7.31 8.24 9.33

I Dec 2015

8.68 6.4 7.54 10.56 8.29

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29. There was no established market mechanism for determination of profit rates

of the NSS. These were administratively controlled and were subject to discretion.

Following the offer of exceptionally high and above market returns, particularly

during 1990s, the NSS attracted significant investment. This led to (i) sharp rise in

the government cost of financing its deficit; (ii) as the instruments were available ‘on

tap’ basis, the flows were not predictable and made the government funding cost

volatile; (iii) the inherent volatility in these flows, and consequent uncertainty over

the government funding requirement from the banking system added difficulty in

formulating stable monetary policies; (iv) the administered nature of NSS profit

rates were a major source of distortion in the term-structure of interest rates; (v) as

these instruments were not traded (price discovery was not possible), these did not

form benchmark for coporate debt; (vi) arbitrage opportunities due to wide interest

rate differential between NSS rates and lending rates on loans; and finally (vii) the

implicit put option (the bond could be susbtituted at any time) meant that corporate

issues would have to be priced at much higher yields to compete with NSS

instruments.

30. In the light of these issues, the government initiated NSS reform including:

(i) the government barred all types of institutional investment in NSS in March

2000; (ii) the government issued long-term debt instruments, i.e. PIBS; and finally,

(iii) the rates of return on NSS were loosely tied to those of PIBs of same maturity

with a premimum (semi-annual adjustment). Nevertheless, a new formula linking

the semiannual adjustment of NSS rate more directly to changes in PIB yields

became effective on July 1, 2004 (for details, see Appendix-2). To align these rates

closer to market, the Ministry of Finance moved from annual fixing of interest rates

to bi-annual rates in 2000, quarterly adjustment of NSS rates in FY2012 and now

shifted to bi-monthly fixing of rates following first auction immediate after

announcement of Policy Rate.

v. Performance of NSS

31. NSS instruments are immune to market fluctuations in interest rates due to

their non-tradeable nature. These do not provide inflation adjusted returns,

nonetheless their relatively higher rates make them attractive investment

instruments. Currently, real rate of return on all NSS instruments is positive

because of steep decline in CPI.

32. The decade of 1990s saw an upsurge in mobilization of funds through NSS

from Rs 132 billion in 1990 to Rs 634 billion in 2000, growing at a compound

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average growth rate of 17 percent. Outstanding investment in NSS rose from 3.75

percen in 1980 to 17 percent of GDP in 2000 which has now declined to 9.0 percent

of GDP. The tremendous growth came at the back of very high returns on NSS,

peaked to 18 percent in 1996,

and resulted not only in mounting debt and servicing

burden, but significant dis-intermediation in the financial system as well. Today,

the total outstanding NSS portfolio is around Rs 2,375 billion net of prize bonds

the outstanding stock of which is Rs 497 billion. The investment in NSS increased

from Rs 634 billion in FY2000 to Rs 2,375 billion in FY2015, an increase of 275

percent. For details, see Table 5.

B. Significance of NSS in Deficit Financing and Raising Government Debt

i. NSS and Deficit Financing

33. Funds mobilized through NSS are an important source of deficit financing

with non-inflationary borrowings. Share of NSS net flows in deficit financing

moved from 31.8 percent in 1990 to 74 percent in FY1999. Massive increase in net

inflows helped the cash starved government to fund its expenditure especially in

the presence of the cap on government borrowings from the central banks under

the Stand By Arrangement (SBA) of the IMF. Nevertheless, it started declining

thereafter and the share of NSS net inflows in deficit financing in FY2015 was only

17.9 percent.

ii. NSS and Domestic Debt

34. Funds mobilized through NSS are generally perceived to be costly as

compared to other sources of borrowing (T-Bills and PIBs). This increases the debt

servicing-burden on the fiscal account. Provision of early encashment facility (i.e.

implicit put option) on most of the schemes distorts the maturity profile of

government debt. Effectively, these schemes have no maturity profile, which

ultimately undermines government’s efforts to manage its financing. Stock of NSS

is not a true reflection of government debt liabilities as it represents the face value

of NSS investments, without taking into account accrued interest. Official numbers

can be quite misleading given that DSCs are bullet bonds – requiring payment of

principle and accumulated returns (which accrue on annual basis) on demand.



Shahid Javed Burki, Caretaker Minister raised the interest rates in December 1996 as part of IMF

Program

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35. Nevertheless, it is argued that penalty on premature encashment, dormant

cases, fixing rate of return at 90 percent of PIBs makes the cost of non-bank

borrowing become lower than the cost of debt raised through the market.

36. During early 1980s, growth in Pakistan’s stock of domestic debt remained in

check because of substantial external inflows in the form of foreign aid and foreign

remittances. Share of NSS in domestic debt was only 14.4 percent in 1980. However,

Pakistan’s stock of domestic debt started rising in the 1990s mainly on account of

widening revenue-expenditure gap and decline in concessional foreign lending

which severely impacted government’s ability to meet its internal and external

obligations. Consequently, the government started raising funds domestically

through NSS and other means. As a result, the share of NSS in domestic debt

surged to 37.5 percent in 1990 which peaked to 48.6 percent in 2000. However, due

to downward trend in NSS rates since FY2013 and use of other financing avenues,

share of NSS in domestic debt has declined to 19.2 percent. NSS as percent of bank

deposits was 30 percent in FY2015 because of BCS and PBA. However, NSS is still a

major contributor to non-bank borrowings. For details, see Table 7.

Table 7. National Savings Schemes Indicators

NSS as % of* FY1961 FY1971 FY1980 FY1990 FY2000 FY2005 FY2010 FY2015

GDP

3.9 3.7 3.75 15.4 17.0 13.1 9.9 8.8

Domestic Debt

14.1 13.9 14.4 37.5 48.6 35.6 31.3 19.2

Non-Bank Borrowings

54.0 54.0 62.0 46.8 71.3

Deficit Financing

12.0 60.0 31.8 44.8 29.7 25.5 17.9

Bank Deposit

38.6 27.2 24.6 30.0

* Net of Prize Bonds

Source: SBP Annual Reports, Economic Survey of Pakistan and Ministry of Finance

iii. NSS and Liquidity Management

37. Given the lack of an effective maturity profile, the huge stock of NSS

instruments also complicates liquidity management in the interbank market.

Institutional investment, such as Pension Funds, in various NSS instruments further

complicates this issue due to the large volumes involved.

iv. NSS and development of the Bond Market

38. Various characteristics of NSS along with high returns are one of the major

impediments for the development of the nascent bond market in the country.

Provision of institutional investments in NSS severally affects the demand for

corporate bonds. At the same time, risk-free returns on these schemes distort price

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discovery of corporate debt instruments. However, PIBs auction has helped in

determining the benchmark for corporate bonds to a large extent.

C. Reforms Proposed by the DCMC



39. It is recognized that while NSS play an important role in mobilizing financial

savings in the economy, the outstanding stock of NSS instruments along with the

unique characteristics of these schemes create distortions in the financial sector. The

Securities Exchange Commission of Pakistan (SECP) formed a Special Committee

“The Debt Capital Market Committee (DCMC) in June 2006 to investigate and

identify the critical issues hindering growth of the debt capital market in Pakistan

and make suitable recommendations for the development and promotion of the

debt capital market. In April 2007, the committee submitted its report to SECP

regarding Pakistan’s Debt Capital Market. Among other issues pertaining to the

development of debt capital market in Pakistan, this report also

reviewed/investigated specific issues pertaining to the structure of NSS which pose

a major challenge in reforming debt capital markets and gave several

recommendations to overcome the distorting impact of NSS schemes on the debt

market. For details, see Appendix-3.

40. Notwithstanding supra, such reforms are outside the scope of this study and

will not be dealt in detail.

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Chapter 4

National Savings Institutions in Other Countries

41. This chapter presents a comparison of National Savings Organizations

operating in selected developed and developing countries including United States,

United Kingdom, India, Sri Lanka and Malaysia, the products they offer and their

management structure.

i. United States

42. The Federal Debt of the United States stood at $ 18.15 trillion as on

September 30, 2015 or 104 percent of GDP consisting mainly of US Treasury

Securities owned by (i) Intergovernmental holdings of $ 5.1 trillion and (ii) Debt

held by Public of $ 13.0 trillion. The latter include both marketable and non-

marketable securities. Non-marketable securities include US Savings Bonds

identical to National Savings Bond which have fixed term but may be prematurely

redeemed after the lapse of 12 months from the date of issue. Treasury Securities

are administered by the Bureau of the Fiscal Service of US Treasury Department.

US Treasury securities include bills, notes and bonds.

43. Treasuries can be bought and sold through an investment professional, a

commercial bank or an on-line broker. They provide the retail investors the most

recent issues that are trading in the secondary market. There often is no commission

charged for buying or selling U.S. Treasury securities. Dealers earn a profit by

buying bonds at one price and selling them at a slightly higher price. Some

individuals prefer to buy new issues directly from the government at auction

through a Treasury Direct account with the U.S. Treasury. They can sell Treasuries

held in a Treasury Direct account, through the Federal Reserve Bank of Chicago in

the secondary market for a fee; the process is the same with both a Legacy Treasury

Direct account (through the Sell Direct program) and Treasury Direct program.

Investors may choose to invest in a mutual fund specializing in Treasuries. Some

funds hold other fixed-income securities or derivatives along with Treasuries, so

investors must be sure they understand the purpose of the fund and the makeup of

its portfolio.

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44. U.S. Savings Bonds may be purchased directly from the U.S. Treasury or

from commercial banks and are often available through employee savings plans.

The owner of a savings bond receives a registered certificate and, unlike other U.S.

Treasury securities, cannot resell or even give the bond away to another individual.

When purchasing a U.S. Savings Bond as a gift, the recipient will be registered as

the sole owner of the bond and it will not count towards your annual purchase

limit, nor will you incur any tax liability. Thus, there is no set up parallel to CDNS

operating in the United States.

ii. United Kingdom

45. National Savings and Investments (NS & I) is a Government department

and became an executive agency of the Chancellor of the Exchequer. As an integral

part of the Government’s debt management arrangements, NS&I is responsible for

providing cost effective financing by issuing and selling savings and investment

products to the public. The powers governing the way in which NS&I products are

structured and managed are derived from the National Debt Act of 1972 and

National Savings Bank Act 1971. Additionally, it is expected by HM Treasury to

comply fully with Financial Conduct Authority (FCA) requirements where

applicable and appropriate on a voluntary basis.

46. Established in 1861, the NS & I reports to the Economic Secretary of the

Treasury and is headed by a Chief Executive Office assisted by a Board. It is one of

the largest organizations in the UK with over 25 million customers and more than

£ 123 billion invested by the public.

47. It is responsible for providing cost-effective financing to the government by

issuing and selling a wide range of retail savings and investment products to the

public that are backed by HM Treasury. These include:

(a) Direct Saver (a saving account) account can be operated either online or by

phone, and gives savers with easy access to their money. However, although

reasonable, the rate paid on this account is not as competitive as the returns

offered by comparable accounts.

(b) Investment Account designed for savers who prefer to manage their money

by post, but again it is possible to find much better returns elsewhere.

Returns from both the Direct Saver and the Investment Account are taxable.

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However, interest is paid before tax is deducted, so savers must pay any tax

owed to HMRC.

available, depending on how long one wants to invest. This type of account

suit savers who want to know exactly what they’ll receive at the end, and

therefore don’t want a variable account.

(d) Income Bonds pay savers a monthly income. These can be encashed without

giving notice or paying a penalty. Income Bonds can be opened with a

minimum investment of £500, and the maximum amount that can be

invested is £1m.

(e) Pensioner Bonds for those aged 65 or over. One can choose from either a

one-year fixed bond paying 2.80% interest or a three-year fixed bond paying

a return of 4.00%. The bonds can be opened with a minimum investment of

£500, and the maximum that can be invested in each bond is £10,000. The

bonds can be operated online, by phone or by post.

(f) Premium Bonds offer savers the opportunity to win a £1m monthly jackpot

as well as over a million other prizes ranging in value from £25 up to

£100,000. Savers do not receive any interest but the prizes are tax-free and

they can invest a minimum of £100 in Premium Bonds and a maximum of

£50,000 (this increased from £40,000 in 2015). In July 2014, a second monthly

£1m prize was introduced which sounds tempting.

(g) Direct ISA pays a variable rate of interest, and returns are tax-free. The

account can be operated online and by telephone, and you can make

withdrawals whenever you want. In the current 2015/2016 tax year you can

invest up to £15,240 into an ISA – and this can be entirely held in cash.

(h) Children's Bonds are for parents wanting to save on behalf of their children.

The minimum one can invest in a Children’s Bond is £25, and the maximum

is £3,000 per child per issue. Bonds last for five years, and can be rolled over

into the next bond issue at maturity, or can be cashed in. Each bond will

mature for good once it reaches its first five-year anniversary on or after the

child’s 16th birthday. There is a penalty equivalent to 90 days’ interest if one

wants to cash it in early.

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(i) Index-linked savings certificates have returns which are linked to inflation,

and as a result have proved hugely popular in recent years as the cost of

living has risen. But there are no issues on general sale at the moment.

Accounts, when they are available, run for either two or five years, and

savers earn interest plus inflation, as measured by the Retail Prices Index

(RPI). For example, if the account paid an interest rate of 0.25% plus inflation,

and inflation was at 2%, the investor will earn 2.25%.

iii. India

48. In India, Small Savings Schemes (SSS) were introduced in the years

following independence. These SSS were largely designed to provide safe and

attractive investment options to the rural and semi urban areas and at the same

time mobilizing resources for development purpose. Towards this end, the Indian

government framed various saving schemes under the Government Savings Bank

Act, 1873, Government Savings Certificates Act, 1959 and Public Provident Fund

Act, 1968. In addition to that, two non-statutory schemes have also been introduced

through executive orders.

49. These schemes are operated through the world's largest postal network with

156,000 post offices throughout India. PPF Scheme, in addition to the post offices, is

also operated through about 8000 branches of public sector banks. Recently 4

private banks i.e. IDBI, ICICI, HDFC & UTI Bank have been authorized to operate

Public Provident Fund and Senior Citizen's Savings Scheme. National Savings

Institute is responsible to ensuring availability of savings certificates, forms and

stationery in the Post Offices / Banks throughout the country.

50. To facilitate the work of popularization of National Savings Schemes and

securing investment from the public, authorized agents are appointed by the State

Governments. Mahila Pradhan Kshetriya Bachat yojana Agency is meant for

women agents only who canvas and secure deposits under 5 Year Recurring

Deposit account and Standardised Agency System agents promote and secure

investment for other savings schemes. To make savings easy and automatic for

salaried people, Pay Roll Savings Group are formed in public and private sector

establishments to save regularly and directly from their salaries. Extra

Departmental Branch Post Masters help mobilizing savings in rural areas. To

inculcate the habit of thrift among the students, School Savings Banks called

‘Sanchayikas’ are established in schools. National Savings Institute provides

support by way of training, guidance and motivation to these extension agencies.

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51. National Savings Institute works under Department of Economic Affairs,

Ministry of Finance, Government of India. The Institute is entrusted with the task

of mobilization of savings in National Savings Schemes of Government of India. For

promotion and mobilization of savings, the Institute undertakes various activities

which include national-level publicity of the schemes, collection and collation of

data, printing of savings instruments from India Security Press, Nasik and supply

to Circle Stamp Depots of Department of Posts, imparting training to officials /

officers of Department of Posts, Banks, State Governments and various agents,

liaison and coordination with the State Governments / Banks/ Department of Posts

/ Extension Agencies, redressal of investors’ grievances, International Cooperation

and providing policy inputs to the Ministry of Finance on matters relating to

National Savings. To facilitate Proper distribution, NSI has created a dynamic

Inventory Control Management System, which is operating at Nagpur with linkage

to the Regional Centres as well as Postal Stores Depots and Circle Stamp Depots.

52. The collections in the small savings schemes have risen from Rs. 1.08 billion

in 1948-49 to Rs. 2075.430 billion in 2013-2014. Outstanding deposits under various

SSS and Public Provident Fund have risen from Rs 1.9 trillion in FY2000 to Rs 9.1

trillion in FY2015. All deposits under small savings schemes are credited to the

'National Small Savings Fund' (NSSF), established in the Public Account of India

with effect from 1.4.1999. All withdrawals by the depositors are made out of the

accumulations in this Fund. The balance in the Fund is invested in special

Government securities as per norms decided from time to time by the Central

Government. The liability of outstanding balances under various small savings

schemes at the close of 31st March, 1999 was borne by the Central Government by

treating the same as investment of NSSF in special Central Government securities.

The net small savings collections (deposits minus withdrawals by the subscribers)

from 1999-2000 to 2001-02 were shared by Central and State Governments through

investment in special securities issued as per their respective share. With effect from

1.12.2011, minimum 50 % of the net collections in a State or Union Territory with

legislature are being invested in special securities issued by the concerned State or

Union Territory Governments. The remaining fund is invested in Central

Government securities or lent to other Union / State Governments or in securities

issued by infrastructure companies or agencies fully owned by the Central

Government. The sums received in NSSF on redemption of special securities are

being reinvested in special Central Government securities. The debt servicing of

Central/State Government securities is an income of the Fund while the cost of the

interest paid to the subscribers and cost of management of small savings schemes

are expenditure of the Fund. The special Central Government securities issued to

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NSSF constitute a part of the internal debt of the Government of India. Interest at

the rate of 9.50 per cent per annum is payable on the special securities issued by

State / UT Governments since 1st April 2003 against their share of net collections.

53. Similar to Pakistan, SSS in India are mobilized through quite attractive rates

as compared to other schemes in the financial market. However, unlike Pakistan,

[where institutions (excluding banks and insurance) are allowed to invest in such

schemes] institutions are not eligible to invest in SSS which are primarily designed

for small urban and rural investors. Moreover, interest rates on SSS are determined

administratively by the Government of India, while the rates on NSS are linked

with the long-term sovereign bond i.e. PIBs since FY00. The Reserve Bank of India is

now (April 2015) persuading the government to link interest rates on postal and

small saving schemes to the market rates on government securities.

54. India has launched country’s first post office savings bank ATM at the Head

Post Office in Thyagaraya Nagar, Chennai in February 2014 and has allocated Rs 49

billion for the Information Technology modernization project of the Department

of Posts for installing 2800 such ATMs by end of 2015. The Core Banking

Solutions (CBS) scheme would benefit as much as 156,000 post offices. Over 26,840

post offices will adopt CBS by 2016. It has now become interoperable where cards of

other banks can be used.

iv. Sri Lanka

55. Sri Lanka commenced mobilization of savings in 1832 and established

National Savings Bank by amalgamating 4 savings institutions, one of which was

Ceylon Savings Bank, in 1972 under National Savings Bank Act 1971. It markets

national savings schemes through a network of 245 branches, including 12 postal

banking units and 06 loan centers. The banking network is further strengthened by

4063 Post Offices and sub Post Offices which function as mini-branches that provide

the facility of depositing and withdrawal. Over 265 ATMs network reaches far and

wide to provide with anywhere anytime banking. They also offer Master Credit

Card and Visa Debit Card

56. The NSB is managed by General Manager/CEO and overseen by a Board of

Directors.

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v. Malaysia

57. First Savings Bank service opened in Perak and Selangor in 19

Century in

Malaysia. These banks soon became part of the country’s Post Office Savings Bank

network which grew to serve over 2.5 million depositors by 1974 with accumulated

assets worth over RM 537 million. The Bank Simpanan Nasional was established

on I

December 1974 under Bank Simpanan Nasional Act, 1974, which enabled the

transfer of the management power from Postal Services Department to the bank’s

Board of Directors. The management team comprises of highly experienced

individuals who come from various financial fields. The management is overseen

by 9-members Board of Directors.

58. A comparative statement relating to national savings network of the selected

countries is at Table 8.

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Table 8. Comparison of NSOs in Select Countries

Pakistan India Malaysia Sri Lanka UK US

Offering Savings

Products

Yes Yes Yes Yes Yes Yes through Markets

Offering Credit

Products

No No Yes Yes No No

Saving Products Defence Savings

Certificates, Regular

Income Certificates,

Special Savings

Certificates, Prize

Bonds, Behbood

Savings Certificates,

Saving Accounts,

Pensioners Benefit

Accounts and Special

Savings Accounts.

Post Office Savings

Account, Post Office

Time Deposits (tenors 1,

2, 3 & 5 years), Post

Office Recurring

Deposits, Post Office

Monthly Income

Account, Senior Citizens

Savings Scheme,

National Savings

Certificate (VIIII-issue),

Kisan Vikas Patra,

Sukanya Samriddhi

Account and Public

Provident Fund (PPF).

BSN GIRO

Account, BSN Basic

Savings Account, BSN

GIRO Corporate

Account, GIRO eSaver,

BSN Fixed Deposit

Account, BSN Senior

Citizen Fixed Deposit

Account, BSN SEDAR

Account, BSN CHESS

Account, BSN Debit

Card, BSN Credit Cards,

BSN Wealth

Management, Islamic

Banking products CM

DEPOSIT-I, CM

DEPOSIT-I, Senior

Citizen, and Sijil

Simpanan Premium.

Savings Accounts (Post Office

Savings Accounts, Divi Surakum,

NSB Pension, Happy Savings,

Smile Savings, Pas Avarudu

Account), Term Deposits (Fixed

Deposit, National Savings

Certificates, FRIENDS), Minor

Accounts (Hapan, Prarthana),

Teenage Account (Ithuru

Mithuru), Ladies Accounts

(Sthree), Senior Citizens

Accounts (Gaurawa, Pensioners

Account) and Gift Tokens. They

also offer opening of foreign

currency accounts such as, Non

Resident Foreign Currency,

Resident Foreign Currency and

Special Foreign Investment

Deposit. The NSB also extends

the facility of ATM/Master Card

or VISA Debit Card.

Premium Bonds,

Savings Certificates:

Indexed Linked, Fixed

Interest, Savings

Accounts, Guaranteed

Equity Bond, Capital

Bonds, Children Bond,

Income Bonds,

Pensioners Guaranteed

Income Bonds

T-Bills, Notes, Bond,

Saving Bonds

Distribution

Channels

National Savings

Centers, Post Offices

Post Offices, Branches of

Public Sector Banks

Bank Branches, ATM

Machines

National Savings Bank Branches,

Post Offices, Savings Shops,

Postal Banking Branches

Post-offices, NS & I Treasury Direct,

Banks, Payroll

Savings Programs,

Brokers

Marketing Advertisement when

launching new

product

Advertising, small

saving agents, Post

Offices

Advertisement,

Sponsoring events,

Analysis

Sponsoring events, Marketing

campaigns

sponsored Savings Certificates.

60. Pakistan inherited the above set-up in 1947. The National Savings Bureau

was renamed as “Pakistan Savings Central Bureau” headed by Central National

Savings Officer with the status of Under Secretary to the Government of Pakistan

with far less independence and authority than National Savings Bureau, Simla. The

Bureau was renamed as Central Directorate of National Savings (CDNS) in 1953

on the recommendations of the Public Investment Enquiry Committee. The CDNS

was given the status of an “Attached Department” of the Ministry of Finance in

August 1960 and was made responsible for all policy matters and execution of

various National Savings Schemes (NSS). In 1972, the CDNS also started dealing

with the sale and encashment of various savings instruments through its Centers

established in the field. Since then, the organization has expanded manifold and so

does the number of savings schemes, accounts holders and transactions volume.

ii. Vision of CDNS

61. The vision of CDNS is to “promote and inculcate the value of thrift for

mobilization of savings for investment in national development.”

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iii. Mission of CDNS

62. The mission of CDNS is to be “the preferred institution for small savers and

to promote the objective of financial inclusion.”

iv. Core Objectives

63. The core objectives of the CDNS are:

(d) Promoting and mobilizing savings in the country;

(e) Generating funds for financing the budget deficit; and

(f) Providing a system with impeccable integrity, trustable, secure and

enjoys the confidence of the people to channelize their savings for

investment, particularly the small savers, pensioners, widows, etc.

v. Statutory Regime Regulating CDNS and NSS

64. The CDNS and National Savings Schemes are regulated by the following

legislative regime:

(a) Government Savings Bank Act, 1873

(b) Post Office National Savings Certificates Ordinance, 1944

(d) Special Savings Certificates Rules, 1990

(e) Regular Income Certificate Rules, 1993

(f) Behbood Savings Certificates Rules, 2003

(g) National Savings Deposit Accounts Rules, 1974

(h) The Post Office Savings Bank Rules

(i) Mahana Amdani Accounts Rules, 1983

(j) Pensioners’ Benefit Accounts Rules, 2003

(k) Prize Bonds Refund Rules, 1963

(l) Prize Bonds Rules, 1999

(m) National Savings Bonds Rules, 2009

(n) National Debt Retirement Program Rules, 1997

Defunct Schemes and Rules

(a) National Deposit Certificates Rules, 1972

(b) Khaas Deposit Certificates Rules, 1973

(d) Prize Bond Rules, 1971, 1987, 1995, 1998

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

65. The products offered by the CDNS are all fixed income capital guaranteed

products other than the prize bonds. In cases of pre-mature encashment, capital is

totally guaranteed while there is some penalty charged to income on investment.

For these reasons, NSS investment is viewed as secure investment fully backed by

the Federal Government.

vi. Structure of CDNS

66. At present, the CDNS has 4299 employees and its main components include:

(a) Central Directorate of National Savings; (b) Directorate of Inspection and

Accounts; (c) Directorate Legal; (d) Directorate of Schemes; (e) 7 Zonal Inspection

and Accounts Offices and 12 Regional Inspection and Accounts Offices; (f) 12

Regional Directorates and (g) Training Institute of National Savings at Islamabad

with a Sub-Training Institute at Karachi (See Figure 1).

Figure 1. Structure of CDNS

67. National Savings Schemes offered by CDNS are sold through a network of

374 National Savings Centers all over the country. There is no National Savings

Center in 237 Tehsils and 6 Agencies of Federally Administered Tribal Areas. For

details, see Table 9. According to the CDNS, the National Savings Centers are

established based on demand, need and fulfilling criterion developed by the CDNS.

Abbottabad

Bahawalpur

Faisalabad

Gujranwala

Hyderabad

Islamabad

Karachi

Lahore

Multan

Peshawar

Quetta

Sukkur

Central Directorate

12 Regional Directorates Directorate,

Ins

ection & Accounts

Training Institute of

National Savin

Abbottabad

Bahawalpur

Faisalabad

Gujranwala

Hyderabad

Islamabad

Karachi

Lahore

Multan

Peshawar

Quetta

Sukkur

Hyderabad

Islamabad

Karachi

Lahore

Multan

Peshawar

Sukkur

7 Zonal

Inspection &

Accounts

Offices

Sub-TINS, Karachi

374 National Savings

Centers

12 Regional

Accounts

Offices

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

Table 9. Province/Region-Wise National Savings Centers

Province/Region No of NSCs

Tehsils without NSCs

Punjab 195

Sindh 93

KPK 54

Balochistan 15

Azad Kashmir 5

Included in GB

FATA 1

Gilgit-Baltistan 2

Islamabad 9

Total

374

243

vii. Functional Hierarchy of CDNS

68. The organizational hierarchy of the CDNS is at Figure 2.

Figure 2. Organizational Hierarchy of CDNS

Director General (BS-21)

Director Inspection

& Accounts-

(

BS-20

)

Director Schemes

(BS-20)

Director Legal

(BS-20)

Principal Training

National Savings

(BS-19/20)

Director Admin

(BS-20)

Zonal Inspection

& Accounts

Directors

(BS-20/19)

Regional

Accounts Officers

(BS-19/18)

Principal Sub-

TINS

Karachi

(BS-18/19)

Regional Directors/

Joint Directors

(

BS-20/19

)

Assistant Directors

(BS-18)

NSO Admn

NSO Scheme

NSO Budget

NSO Publicity

NSO Treasury

National Saving

Center Manager

(

BS-16/17/18

)

Operational

Manager

Cashier

Accounts

Officers

Guard

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

viii. Administrative Structure of Regional Directorate

69. The administrative structure of a Regional Directorate is at Figure 3.

Figure 3. Administrative Structure of RDNS

ix. Functions of Different Tiers/Offices

70. The job description of different tiers and offices of CDNS is at Appendix 4.

x. Indicative Staffing of National Savings Centers

71. The National Savings Centers have been classified into A, B, C and D

categories on the basis of balances of certificates and accounts, average monthly

gross investment, number of transactions in terms of principal payments, profit

payments, prize money payments, opening of new accounts and total number of

accounts. The details are at Table 10.

Table 10. Categorization of National Savings Centers

Province/Region A B C D

Total

Punjab 87

195

Sindh 34

Khyber Pakhtunkhwa

Balochistan 3

AJK 2

FATA -

Gilgit-Baltistan 1

Islamabad 3

Total 147

128

374

Regional

Director

(

BPS-19

)

Section Officer (Admn)

(

BPS-17

)

2 Treasury Officers

(

BPS-17

))

Officer Incharge NSC

(BPS-16/17/18)

DDO

(

BPS-17

)

Officer Incharge Schemes

(

BPS-17

)

A.D. (HQ)

(

BPS-18

)

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

72. The indicative staffing of each of the four categories of NSC has been laid out

in the Handbook of the CDNS on the basis of workload is reflected at Table 11.

Table 11. Indicative Staffing of NSCs

Staff BPS Category A

Category B Category C Category D

Total

Assistant Director 18 1 147

Center Incharge NSO 17/16

1 1 207

NSO Certificate 17 1 147

NSO Accounts 17 1 147

DNSO 16 1 20

IInd Officer 16 1 1 207

ANSOs/JNSOs (Counter Incharge)

Counter Officer/Clerks

16/11

5 4 3 2 1524

Cashier 14 2 1 1 501

Administration Clerk 14 1 1 275

Naib Qasid/Gunman 1-4 4 3 3 3 1269

Total

15 11 9 6 4444

xi. Sanctioned Strength of CDNS

73. However, NSC-wise staffing is made on the basis of total sanctioned strength

and staff actually available. The sanctioned strength of CDNS is at Table 12 and that

of Regional Directorates of Inspection and Accounts as well as Zonal Inspection and

Accounts Offices is at Table 13.

xii. Vacancy Position

74. At present, around 34 percent (1443) position of CDNS are vacant which is

affecting service delivery at various branches. The Committee was informed that

efforts are being made to fill these vacancies. Towards this end, filling of posts of

NSOs by initial appointment through Federal Public Service Commission (FPSC) is

underway while the Departmental Recruitment Committee is processing the

recruitment of ANSOs to fill these posts. Departmental Promotion Committee is

also processing the filling of posts by promotion wherever required. Details are at

Table 14.

xiii. Directorate of Inspection and Accounts

75. For maintenance of its Accounts, National Savings was declared as Self

Accounting Entity (SAE) by the Finance Division w.e.f. 21.01.1978. Directorate of

Inspection & Accounts encompasses two separate set-ups, i.e. Accounts and Audit.

It is charged with the responsibility of conducting internal audit and inspection of

Page71of176



440 auditable units every year (374 NSCs & 66 other offices, comprising NSTs,

DDOs, Regional Accounts Offices (RAOs) and Scheme Sections of RDNS) and

follow up action for the settlement of audit observations, consolidation of

budgetary expenditure, reconciliation thereof, preparation of annual appropriation

book of accounts, consolidation of Zakat and withholding tax deducted through

National Savings Centres (NSCs) along with their remittances to the quarters

concerned. In discharge of these functions, the Directorate is assisted by seven (7)

Zonal Inspection & Accounts Offices (ZIAOs) and twelve (12) Regional Accounts

Offices (RAOs), each headed by a Director/ Joint Director and Assistant Director

/NSO, respectively.

76. The inspecting officers are required to carry out 100 percent audit of each

and every receipt & payment entry. Discrepancies, as and when noticed, are

discussed with the Officer Incharge with a view to settling minor errors and

omissions at the spot. Immediately on the conclusion of the audit, the inspecting

officer is required to furnish on the prescribed Performa a report, each to the Zonal

Inspection & Accounts Office, Regional Directorate concerned, National Savings

Centre/Office concerned and the Directorate of Inspection and Accounts. Apart

from the regular audit, it is an essential requirement that the NSCs/offices are

subjected to surprise inspection at least once in 3 months by the inspecting officer

and 6 months by the Zonal Head. The sanctioned strength of the Directorate is at

Table 15.

xiv. National Savings Treasuries (NSTs)

77. National Savings Treasuries are located at Abbottabad, Bahawalpur,

Faisalabad, Gujranwala, Hyderabad, Islamabad, Karachi, Lahore, Multan,

Peshawar, Quetta, Rawalpindi, Sukkur. National Savings Sub-Treasuries are

located at Dera Ismail Khan, Sargodha and Sialkot. These Treasuries and Sub-

Treasuries operate under the administrative control of the Regional Directorates

responsible for safety and security and arranging collection of cash from NSCs,

supplying of cash to the NSCs and remittance of cash/cheques to the State Bank of

Pakistan (SBP) and National Bank of Pakistan. The functions of the National

Savings Treasures are listed at Appendix-5.

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

Table 12. Sanctioned Strength of CDNS Excluding Directorate of Inspection & Accounts

BPS HQ TINS

ISD

TINS

KHI

RDNS

Peshawar

RDNS

Abbottabad

RDNS

Islamabad

RDNS

Gujwala

RDNS

Lahore

RDNS

FSLBD

RDNS

Multan

RDNS

Bahwpur

RDNS

Sukkur

RDNS

Hyd

RDNS

KHI

RDNS

Quetta

Total

Director

General

21 1

Addl DG 20 1

Director 20 2 0 0 1

1 1

Director

(Legal)

20 1

Director Ops. 20 1

JD/DD 19 2 1 0 1

0 1

System Analyst

19 1

Asstt. Director 18 8 4 1 6

5 6

Programmer 18 1

NSO 17 0 0 1 28

29 35

314

C.O. 17 1

Computer Oper

17 1 1

DAD 16 5

DNSO 16 16

30 20

218

APS 16 5 1

1 1

ANSO 14 32

37 47

428

Assistant 14 13

Stenotypist 14 10 1 2

2 3

Library Asstt 12 1

JNSO 11 2 1 86

127

131

112 115

152

1121

UDC 09 11

LDC 07 9 3

4 3

Driver/DR 05 5 1 3

4 2

Machine Oper 03 1

Daftri/N.Qasi 2/1 20 4 2 28

43 43

413

Gunman 2/1 99

127

102

120

126 126

121

1217

Total

99 14 5 307

260

448

295

452

394 403

211

247

263

460

149

4007

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Table 13. Sanctioned Strength of Directorate, Zonal & Regional Offices of Inspection & Accounts

Posts

Director JDD/DD AD NSO APS DNSO

ANSO Steno JNSO LDC Driver NQ

Total

BPS 20 19 18 17 16 16 14 14 11 09 05 01

Directorate IA 1

Zonal IAO

ZIAO Peshawar 1

Sub-ZIAO Abbottabad

ZIAO Islamabad 1

ZIAO Gujranwala 1

Sub-ZIAO FSLBad

ZIAO Lahore 1

ZIAO Multan 1

Sub-ZIAO Bhawalpur

ZIAO Hyderabad 1

Sub-ZIAO Sukkur

ZIAO Karachi 1

Sub-ZIAO Quetta

Sub-Total 2 6

225

RAO Peshawar

RAO Abbottabad

RAO Islamabad

RAO Gujranwala

RAO Faisalabad

RAO Lahore

RAO Multan

RAO Bahawalpur

RAO Hyderabad

RAO Sukkur

RAO Karachi

RAO Quetta

Sub-Total

Total

2 6

0 49

292

Page74of176

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Table 14. Vacancy Position in CDNS

Post BSP Sanctioned Vacant Retirement in 2016

Director General 21 1

Additional DG 20 1

Directors 20 18

Joint Directors/Deputy Director 19 20

System Analyst 19 1

Assistant Directors 18 143

Programmer 18 3

National Saving Officer 17 400

200

Computer Operator/CO 17 7

DNSO/DAD 16 230

APS 16 21

ANSO 14 428

Stenos/Assistants 14 98

Library Assistant 12 1

JNSO/Cashiers 11 1157

410

Upper Division Clerk 9 11

Lower Division Clerk 7 45

Drivers 4/5 43

Machine Operator ¾ 1

Niab Qasid ½ 425

291

Security Guards ½ 1245

411

Total

4299

1,443

xv. Data Flow and Reconciliation Process in CDNS

78. The Data flow and reconciliation Process in CDNS is reflected in Figure 4.

The NSCs send periodical reports of fund movement to the Scheme section of the

relevant Regional Directorate (RDNS) where the figures for all the NSCs in the

region are consolidated. Each NST also sends reports on fund movement to the

RDNS. The figures for the NSTs and the consolidated figures for the NSCs and the

data of NSTs are recorded in a standard format (NS-10) which is then forwarded to:

(i) Scheme section of the CDNS (ii) relevant Regional Accounts Office, and (iii)

Directorate of Inspection and Accounts. The figures reported for each scheme by

NSCs include receipts, repayment of principal/withdrawal and profit paid. The

Scheme section also receives reports from the State Bank of Pakistan for NSS

transactions at scheduled banks and from the Pakistan Post Office relating to

transactions at Post Offices.

79. Reconciliation takes place at various levels, the more important being: (i)

NSCs and NSTs reconcile fund movement between themselves; (ii) NSTs reconcile

Page75of176



movement of funds with the Regional Account Offices, Federal Treasury

Offices/District Accounts Offices and with the SBP; (iii) RAOs reconcile with the

appropriate sub-offices of the Accountant General of Pakistan Revenues (AGPR)

and submitting details of this reconciliation to the DIA in the headquarters; and (iv)

the DIA reconcile figures for the NSS, banks and AGP

Figure 4. Data Flow and Reconciliation Process



xvi. Training Arrangements

80. The Training Institute of National Savings was established at Rawalpindi on

Nov, 1974 and sub-Training Institute was established at Karachi in January 1984.

These institutions impart training to officers/officials of the CDNS to newly

appointed officers/officials as well as refresher courses every few years. The

training upon appointment consists of basic knowledge in audit, accounts, branch

management followed by on-job training. The refresher courses are more

specialized. These Training Institutes also conduct different Computer Courses for

in-service employees along with Special Courses for Treasury Officers, DDOs, Legal

Officers, Administrative Officers, and Regional Accounts Officers etc. The details of

the courses of training are at Appendix-6.

National Savings Centers

Regional Directorates

CDNS

Sub Office AGPR/

AGPR

DIA

Finance Division

RAOs

Page76of176



xvii. Infrastructure of National Savings Centers

81. The CDNS is one of the oldest organizations functioning since World War I.

It is one of those organizations which Pakistan inherited at the time of

independence. Regrettably, the CDNS does not own any assets in terms

offices/buildings except two open plots, one in Rawalpindi and other in Islamabad.

CDNS headquarters, zonal and regional offices and all NSCs are housed in rented

buildings/shops which forced the Centers to operate in given environment and

their improvement is totally dependent on the wishes of building owner.

xviii. Inflows and Outflows from NSS

82. The inflows and outflows from NSS for the last ten years are given at Table

15.

Table 15. Trend of Flows from NSS (Rs Billion)

Financial Year Inflows

Outflows

Net Flows

Profit Paid

FY2006 397

388

8.8

FY2007 590

518

181

FY2008 551

462

273

FY2009 1,229

962

267

289

FY2010 718

496

222

264

FY2011 785

550

235

197

FY2012 947

759

188

298

FY2013 1,204

638

386

236

FY2014 1,083

876

207

252

FY2015 1,163

827

336

252

xix. Budget of CDNS

83. The budget of CDNS has increased from Rs 589 million in FY2006 to Rs

2,591 million in FY2016, an increase of 340 percent, in nominal terms. However, a

substantial portion of this increase is in Establishment Charges. During the same

period, the total portfolio of CDNS has increased from Rs 940 billion (inclusive of

Prize Bonds) to Rs 2872 billion, an increase of 205 percent. Allocation for pay and

allowances has increased from 52 percent in 2009 to 68 percent of the budget while

the operational budget has declined from 48 to 32 percent of the budget during the

same period. The rent of buildings/NSCs has increased from 32 to 41 percent of the

budget which leaves a small balance for taking care of the operations of the CDNS.

Annual Budget of CDNS is at Table 16.

Page77of176



Table 16.Annual Budget of the CDNS (Rs in Billion)

Financial

Year

Gross

Budget

Establishment

Charges As %

of Gross

Budget

Operational

Budget

(%)

Rent As % of

Operational

Budget

Gross

Bud

et As %

of Gross

Inflows

Gross

Budget As

% of Net

Inflows

Operational

Budget As %

of Net

Inflows

2009 1.000 52.0 48.0

0.068 0.37 0.18

2010 1.105 52.0 48.0

0.15 0.50 0.24

2011 1.288 63.5 36.5

0.16 0.55 0.20

2012 1.389 60.6 39.4

0.15 0.74 0.29

2013 1.807 68.5 31.5

0.18 0.48 0.15

2014 1.994 65.0 35.0

0.18 0.96 0.33

2015 2.405 67.0 33.0

0.21 0.71 0.23

2016 2.591 68.0 32.0

xx. Recruitment Rules for Hiring in CDNS

84. The recruitment/appointment structure of CDNS as per S.R.O mentioned

supra is at Table 17. The Government approved one-step upgradation of the

functional posts in 2012 to incentivize the employees of the CDNS and open

avenues for promotion. The Ministry of Finance notified the revised rules of

recruitment vide S.R.O. 274 (I)/2014 dated January 22, 2014 (see Appendix-10).

Table 17. Rules of Recruitment for Appointment

xxi. Computerization of CDNS

85. Computerization of CDNS started in FY2005 when mainframe was

purchased, tailor-made software was developed and an Advisory Board was

constituted to facilitate automation. Phase-I was approved in FY2010 under PSDP at

a total cost of Rs 397.32 million. 83 NSCs have been computerized in four years

(FY2013) without online connectivity and networking. Phase-II was approved at a

Post BPS

Number

By Promotion

By Initial Appointment

DG 21 1

100% -

ADG/Director 20 19

100% -

Director Legal 20 1

- 100%

Joint Director/Deputy Director 19 20

100% -

Assistant Director 18 143

70% 30%

NSO 17 400

50% 50%

Confidential Officer 17

100% -

Deputy Assistant Director 16 5

65% 35%

Deputy National Savings Officers

16 225

100% -

ANSO 14 428

75% 25%

JNSO 11 1140

10% 90%

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

total cost of Rs 897.75 million in FY2015 with a gap of 18 months. It is proposed to

computerize additional 46 NSCs at Islamabad, Gujranwala, Faisalabad, Lahore,

Hyderabad and Karachi under this phase. 240 posts have been approved in the PC-I

for Phase-II as indicated at Appendix 7. However, after completion of the current

phase of computerization, 235 NSCS and many offices of the CDNS will remain

without computerization and connectivity. This partial computerization will not

achieve the real objectives of automation and parallel manual and computer system

will continue and the entire effort will go waste.

xxii. Opening a New Account or Encashment of Certificates or Profit

86. The flow charts for opening a New Account or encashment of certificates or

profit are at Figures 5 and 6.

xxiii. Scheme-Wise Investors

87. Scheme-wise investors, net off Prize Bonds being bearer, are given at Table

18.

Figure 5. Flow Chart for New Account Opening at NSC





Client Enters A NSC

Fills Forms for Saving

Certificates Or Deposit

Accounts

Tenders SC-I or

DA-I Duly Filled

at the Counter

Depositing Cash or

Cheque at Cash Counter

Allotment of Account No

& Certificates

In case of Cheque, Receipt is

issued and the Depositor

needs to return after four days

Issuance of Certificates and Pass Book

Entry in Manual Registers or

Data Entry on Relevant Counter

and approval of JNSO/NSO or

ANSO/NSO

Signature of NSO and Handing Over

Certificates/Pass Book to Client

Takes Token

Page79of176



Figure 6. Flow Chart of Profit Payment at NSC



Table 18. Scheme-wise Investors as on 30

June, 2015

Schemes No of Investors

Defence Savings Certificates 2,057,063

Special Savings Certificates (Registered) 1,524,246

Behbood Savings Certificates 959,624

Regular Income Certificates 440,212

Short-Term Savings Certificates 2,382

Savings Accounts 1,882,889

Special Savings Accounts 157,740

Pensioners Benefit Accounts 252,061

Defunct Schemes (KDA/C, NDA/C, MAA

76,474

Total

7,352,691

xxiv. Monthly Transactions

88. Average monthly transactions at NSCs are at Table 19.

xxv. Competitors of NSOs

89. The products currently marketed by the CDNS are in the nature of deposit

accounts as well as fixed income and term instruments. These products are offered

for investment of personal savings by the competitors, mainly commercial banks.

The services now offered by the banks are at Table 20.

Client Enters A NSC

Checking of account and

signature in the Registers

Tenders signed

profit coupon at

the country

Data Entry by the Counter

Officer in the System/Register

After Approval, Coupon is

delivered to the Cash

Counter

(

Cashier

)

Forward the Coupons to Second

Officer (ANSO) for verification

and clearance

Second Officer forward the

same to NSO for approval

Cashier Makes Payment

to the Client

Takes Token

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Table 19. Average Monthly Transactions

Schemes No of Transactions

Defence Savings Certificates 23,213

Special Savings Certificates (Registered) 211,278

Behbood Savings Certificates 971,355

Regular Income Certificates 457,993

Short-Term Savings Certificates 3 Months 735

Short-Term Savings Certificates 6 Months 16

Short-Term Savings Certificates 12 Months 18

Savings Accounts 572,360

Mahana Amdani 43,019

Special Savings Accounts 2,970

Pensioners Benefit Accounts 244,595

Defunct Schemes (KDA/C, NDA/C, MAA 2,000

Prize Bond Sale/Purchase/Claim of Prizes 1,346,400

Other Transactions (Death, Duplicate, Pledge, Transfer)

8,500

Total 3,882,452

90. The key differences between NSS and deposit banking products are: (i) the

convenience in respect of processing transactions, which has improved quite

substantially with automation; (ii) ability to write negotiable checks to third parties

as opposed to NSS checks negotiable only at NSCs; (iii) the ability to transfer funds

either through Check or ATMs or internet banking; and (iv) the ability to draw cash

at any branch through ATMs.

Table 20. Matrix of Banks Services

Services Range

Description

Cash Management Credit E-Banking

Deposits

Checking Short-Term Finance

Transfers Long-Term Finance

Instant Transfers in the same Bank

ATM Facilities Credit Cards

Payments

Debit Cards

Applications for Services

91. Compared to the NSOs outreach, the geographic reach of competitor banks is

considerably higher, as is evident from Table 21, 374 vs 10,984 branches. Many of

the banks have overseas branches from where they administer their own

products/schemes making their reach truly global.

xxvi. Number and Nature of Complaints

92. Number and nature of complaints received from office of the Wafaqi

Mohtasib are reflected at Table 22. 34 percent of complaints relate to deduction of

Zakat and With-holding Tax while 36 percent complaints relate to general and

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procedural matters. 30 percent complaints are linked with interest rates stamped on

back side of the certificates as these rates change every two months and it is not

possible to discard old inventory of certificates.

Table 21. Number of Banks and Branches in Pakistan

Group or Type of Bank

June 2014 June 2013

Banks

Branches

Banks

Branches

1. Pakistan Banks

i. Public Sector

a. Commercial

b. Specialized

ii. Domestic Private

10,957

2,569

2,022

547

8,388

10,332

2,426

1,887

539

7,906

2. Foreign Banks 7

Total 38

10,984

10,361

93. During visit of the Committee to the National Savings Center, people present

in the waiting area complained about: (i) too much time taken by the staff to dispose

of a client; (ii) queue jumping by clients because of personal acquaintance with staff;

and (iii) parallel verification of record, manual and computer. In some cases, the

clients had to wait for two to three hours for their turn.

Table 22. Number and Nature of Complaints

Year

Deduction of

With-holding

Tax & Zakat

Printing of

Rates on

Back Side

General/

Procedural

Complaints

Total

2012

2013

2014

2015

Total 65

189

94. Majority of the complaints in General/Procedural category pertains to long

transaction time, operational environment of NSOs and inconvenience caused to

Senior Citizens. System of manual verification of amount of investment and

signatures in Registers consumes a lot of time. In addition, multiple registrations of

a single customer on which profit is due on different dates or on the same date

increase transaction time that makes clients to wait in queues for hours for their

turn. At times, clients have to wait for their turn to access the counter twice for the

same transaction: first to submit profit coupons at the counter and then again has to

wait for receipt of profit.

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95. The Additional Finance Secretary (Budget) informed the Committee that he

has developed a system whereby he follows up every complaint which is received

in his office. He also randomly cross-verifies with the complainant if his or her

complaint has been addressed. The Acting DG further informed the Committee that

the CDNS is maintaining a Complaint Cell to redress grievances of the clients.

xxvii. Disciplinary Cases

96. Table 23 indicates that the disciplinary action is generally taken against lower

functionaries of CDNS including BS-1 to 16 and that too mostly awarded minor

penalty.

Table 23. Disciplinary Action

Year Total Cases BS-11 & Above

BS-1 to 9

Decided

Major Penalty

Minor Penalty

2013 12 7

2014 16 11

2015 23 19

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Chapter 6

TOR 2- To Identify Institutional, Procedural and Systemic Weaknesses

Which Hinder The Efficient Delivery Of Service To The Clients.

TOR 3 - To Look into the Causes of Mal-Administration and Mal-

Functioning within the Department.

A. Institutional Weaknesses

97. As elaborated supra, the outstanding stock of NSS is approximately Rs 3,000

billion inclusive of bearer bonds. As of June 30, 2015, the investment in NSS

constitutes 9 percent of GDP, 19.1 percent of domestic debt, 70.1 percent of non-

bank borrowings, 18 percent of deficit financing and 25 percent of bank deposits.

It clearly reflects that CDNS is no ordinary organization but is performing a vital

role in the financial sector of Pakistan and the economy since independence.

98. However, the organization, as it exists today, does not seem to be a result of

planned, systemic and scientific construction nor serious thinking and strategy. The

current organizational structure has evolved over time as a result of ‘patch-work as

and when needed’ rather than a consequence of any management study or

scientific analysis. Likewise, expediencies and deficit financing requirements seem

to have been instrumental in determining the form and status of various Savings

Schemes introduced from time to time without any market survey, financial sector

demands and pricing of the schemes. Apparently, CDNS is not getting due

attention and focus of the policy makers because of perceived captive investors,

investment and absence of strategy to accelerate rate of savings in Pakistan.

99. The appraisal of CDNS, unmistakably, brings out the following facts and

weaknesses:

i. Governance of CDNS

100. Good governance of a financial institution, such as CDNS, requires checks

and balances on the power and rights accorded to it. Without checks, the

behaviour of management may lead to disaster. Weak and ineffective governance of

important financial institution can be a contributory factor in massive failure of

financial sector. But governance is not merely a fixed set of guidelines and

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procedures, rather, it is an ongoing process by which the choices and decisions of a

financial institution are scrutinized, management and oversight are streamlined and

strengthened, appropriate culture takes root and reinforced and financial

institution’s leaders are assessed and supported.

101. Besides, behavior in a financial institution is the key. Focus on right

behviour means a shift from the “hardware” of governance (structures and

processes) to “software” (people manning the organization, management,

leadership skills, organizational culture and values). The art of governance is in

making different tiers functioning well and adjusting these tiers and forms to

enhance organization’s efficiency and service delivery. It requires mature

leadership, sound judgment, genuine teamwork, selfless values and collaborative

behaviors---all carefully shaped and nurtured over time.

102. In addition, management needs to play a continuous proactive role in the

overall governance process. The vast majority of governance and control processes

are embedded in the organizational fabric, which is woven and maintained by

management. The controlling authority and the stakeholders are dependent on

management for information and for translating sometimes highly technical

information into issues and choices requiring business judgment. Governance

cannot be effective without continuing input from management in identifying the

big issues and taking policy decisions. It must have modern skills and market

perspective to perform its vital role and help the supervisors in doing their job well.

The management must reinforce the values that drive good behaviour through the

organization and build a culture that respects risk while encouraging innovation.

103. Supervisors have legally defined responsibilities relating to risk control,

fraud control and conformance to laws, regulations and instructions and

standards of conduct. To be effective, this requires regular interaction between the

management of a financial institution and senior people in supervisory units. While

doing so, the supervisors must maintain their independence and must not be doing

management’s job. Supervisors must have a unique perspective on emerging

systemic, macro-prudential risks and competition. Nevertheless, in the policy

making debate, the qualitative aspect of supervision is generally overshadowed by

quantitative, rules-based regulatory requirements.

104. The portfolio of CDNS has increased from Rs 760 million in 1961 to Rs

3,000 billion; it continues to be functioning as an Attached Department of the

Ministry of Finance, as it was at the time of independence, being managed through

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a conservative moribund managerial structure. Its leadership and management

continue to look towards the Ministry of Finance for all policy and operational

matters. Effectively, the CDNS is dealt, managed and controlled by the Budget

Wing of the Ministry of Finance. All proposals, be it policy or operational, are at the

mercy of concerned Section Officer/Deputy Secretary dealing with the CDNS.

105. The seriousness of the Ministry of Finance to manage this important

financial institution is reflected from the fact that CDNS is without a regular

Director General of BPS-21 for the last two years. Internally, no one qualifies for

the job. Consequently, the CDNS is now being managed by Joint Secretary

(Budget) of the Ministry on part-time basis as additional charge. The supervisors

in the Ministry perceive it as one of the Wings of the Ministry, therefore, the

interaction is quite informal and need and demand based, generally for some

appointments or financing requirements, rather than formal, structured and

governance oriented. Ministry’s approach towards the CDNS seems to be

characterized by (i) aversion to long-term planning and goal setting; (ii) focus on

‘fire-fighting’ than restructuring the organization to make it more compatible with

Century’s needs and modernizing systems and procedures; and (iii) tendency to

respond only to the urgent issues as opposed to the important issues.

106. The CDNS is neither classified as a financial institution (bank) in true

sense nor categorized as non-banking financial institution (NBFI), therefore, it is

outside the regulatory regimes of either the SBP or the SECP. Though, it is an

important player in raising domestic debt and funds for deficit financing, Director

General (Debt) office in the Ministry of Finance, despite statutory mandate, has no

role in terms of policy decisions, products and pricing of NSS.

ii. Structure of CDNS

107. Organizational structure is defined as a grouping of people and tasks into

different units to boost coordination of communication, decisions, and actions. It

provides an understanding of division of work into activities, linkage between

different functions, hierarchy and authority structure and relationship. The close

connection between various tiers of management and the processes taking place

inside an organization makes it is easier to understand the intricate task of directing

an efficient organization.

108. Generally, the structure of an organization is divided into five different

configurations: (i) simple structure, which is often a small organic organization

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