Business

Wednesday October 14, 2009

Savings from new salary deduction system

By RISEN JAYASEELAN


Government stands to save RM6mil a year in administrative costs

KUALA LUMPUR: The Government stands to save close to RM6mil a year in administrative costs under a new system of automated salary deductions for loans to government employees, according to an official of the Accountant General’s (AG’s) Department.

“Under the current system, there is a cost of RM1.43 for every salary deduction that the AG’s Department makes. This is the cost to issue and post a cheque to the lender after deducting the salary of a government employee. At present the Government bears this cost,” the official, on condition of anonymity, told StarBiz.

A new system is to be built by a consortium of commercial banks to interface with the AG’s Department, following a move by the Government to open up the monopoly of automated salary deductions currently held by Angkasa, the National Cooperative Organisation of Malaysia.

Under the new system, the banks would pay RM1 per transaction to the AG’s Department, while the Government subsidised the balance 43 sen, the official added.

That RM1 per transaction translates into an estimated RM500,000 per month for the Government.

It is understood that the AG’s Department has already began piloting a system that bypasses Angkasa by establishing a direct link with Bank Simpanan Nasional. However, the link is not real time and involves the usage of encrypted compact disks in transferring data between the two parties.

A real time system will make loan processing and disbursement work faster, which is why some banks are scurrying to build the new system, which will run parallel to Angkasa’s.

A direct involvement by the banks in lending to government employees using the automated salary deductions is said to bring more competition into the market.

The banks, with their cheaper cost of funds and sophisticated products, should be able to offer attractive interest rates and entice government employees to shift their existing loans unto newer ones that have better interest rates.

In a related development, Angkasa and a number of credit cooperatives are planning on issuing a petition to the Government to halt the opening up of the Angkasa salary deduction scheme to commercial banks on the premise that it will negatively impact the earnings of these cooperatives.

That, in turn, would hinder them from carrying out some of their social programmes, they claimed.

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