KARACHI, Dec 11: All 39 local and foreign banks operating in Pakistan saw an inflow of Rs28 billion in their net deposits. This enlarged their combined deposit base to Rs2092 billion at the end of last month, from Rs2064 billion at the end of October 2004.

Bankers say bank deposits grew at end-November as part of the money withdrawn form banks ahead of Eid, which fell in mid-November, flew back into the system towards the end.

In October, bank deposits had declined by Rs1 billion on rupee withdrawals from banks for increased spending in Ramazan that had started from the middle of that month.

But it was not only the coming back of the money withdrawn from banks that expanded the deposit base of the banking system. "Bank deposits grew also because currency already in circulation, before Ramazan, started flowing into the banking system as formal economy grew," said a banking source.

A build-up of Rs28 billion in the deposit base last month, against Rs1 billion decline in October, indicates that low rates of return on bank deposits are yet to have a dampening impact on their growth. Weighted average return on fresh deposits mobilized in October was at 1.88 per cent, up from 1.69 per cent in September, but still too low in the context of rising interest rates structure: average mark-up on fresh lending in October was 6.01 per cent, up from 5.84 per cent in September. Data for November would be out in January.

Data released by the State Bank show that banks' lending grew much faster than their deposits in the last month. Banks' advances grew by Rs42 billion in November. With that total stock of advances rose to Rs1515 billion last month from Rs1473 billion in October.

This indicated a slower growth in advances last month compared with what it was in October when total advances had grown by Rs77 billion, from Rs1396 billion to R1473 billion.

On the other hand, banks reduced their total investment by Rs31 billion in November as the State Bank scrapped an auction of long-term bonds and refused to raise T-bills yield sharply. In October, banks has rather increased their investment by Rs4 billion.

SBP data show that the stock of banks' investment declined to Rs644 billion at end-November from Rs675 billion at end-October. Bankers say that a fall in banks' investment last month occurred despite the fact that the federal government borrowed heavily to fill in the gap between its income and expenses.

They point out that the government, last month, borrowed more from the central bank and less from the commercial banks, and also retired some of the debt previously raised from banks.

The SBP data show that the federal government's borrowing from the central bank went up by Rs40 billion last month enabling it to retire Rs19 billion net credit obtained from the banking system. Senior central bankers say the government's borrowing from the central bank is potentially more inflationary than its borrowing from the banking system. Small wonder than, if inflation numbers do not show a major declining trend in November. Data for November inflation would be out on Monday.