December 14, 2001	Friday	Ramazan 28, 1422

ISLAMABAD, Dec 13: Deposits mobilization earlier on wane, has recorded turnaround with surging propensity in the growth of banks’ deposits.

Deposit mobilization by the banks, which dwindled considerably after calendar year 1997 as a proportion of GDP, declined from 42.4 per cent in 1997 to 38.5 per cent in calendar year 2000, informed sources said on Thursday.

Growth rate of overall deposits of scheduled banks have gone down from 10.1 per cent in calendar year 1997 to 6.7 per cent in calendar year 2000. However, the slowdown seems to have been arrested and reversed in 2000 with growth increasing from 3.6 per cent during 1999.

Group-wise performance of deposit mobilization is a reflection of the varying degree with which each group has been affected as a result of foreign currency accounts freeze.

Foreign banks were affected the most, given their high reliance on FCAs. They experienced deposit erosion of 3.8 per cent in 1998 and 14 per cent in 1999.

However, they were able to successfully turn it around to show a deposit build up of 2.1 per cent in 2000 and similar recovery is shown by private domestic banks.

Deposit mobilization efforts of nationalized commercial banks (NCBs) seem to be waning, after closure of their successful rupee deposit schemes linked through lottery prizes.

Growth in NCB deposits is declining continuously since 1998. Even before the freezing of FCAs, their growth was only 3 per cent in 1997 showing lethargic performance.

Despite the slowdown, NCBs captured a larger share of deposits. Aggressive posture of private domestic banks in mobilizing more deposits in CY 2000 is clearly reflected in their growth going up from only 1.9 per cent in CY 1999 to 21.7 per cent in CY 2000.

This has enabled them to increase their share in deposits to 14.2 per cent in CY 2000. Foreign currency deposits had been the prime factor causing around double-digit growth in the deposits of the banking system till the freeze.

Either through institutional deposits or resident deposits, the banks especially foreign banks were very comfortable in accumulating these deposits, which not only provide the counterpart rupee funds in government papers.

With the freeze, the whole scenario changed. FCA schemes has been revised and now banks are neither required nor have the option to place their FCAs with the SBP.

Although the growth in FCAs increases the deposit base of banks, it does not add to their rupee liquidity. In this respect the increasing share of foreign currency deposits in total deposit base is a worrying development.

In order to check this trend, SBP made it compulsory for the banks not to allow FCAs to exceed 20 per cent of their rupee deposits effective from January 1, 2002, which will ensure the rupee-dollar deposit mix remains manageable.—APP