Pakistan is the costliest country in the region that reflects poor saving and banking in the country, the banker added. - File photo

KARACHI: High inflation and poor state of economy have led to a decline in the number of small account holders, said banking sources.

The State Bank wants to see an increase in the number of account holders, but persistent double digit inflation has eroded the capacity of middle and lower middle class to remain liquid with their accounts in banks.

There is no use to attract small account holders as it increases the cost of maintaining the account while it contributes little to raise deposits, said a senior banker.

Pakistan is the costliest country in the region that reflects poor saving and banking in the country, the banker added.

State Bank's latest data showed that deposits of banks have started declining since the beginning of new fiscal year.

The stocks of deposits of banks in June 2011 were to the tune of Rs5.599 trillion which fell to Rs5.418 trillion at the end of September. Declining bank deposits are reflecting the poor state of economy, mainly hit by high inflation, sources said.

A recent research report said the cumulative impact of inflation of last four years was 96 per cent.

Bankers said this high inflation was certainly affecting deposits growth in the banking industry, but they were not ready to accept that small accounts could improve the situation.

However, the State Bank took notice of the situation and advised the bankers to facilitate people of small holdings to open their accounts.

“It has been observed that in recent years the number of account holders, in particular the number of small depositors, declined despite increase in the number of bank branches,” said a circular of the State Bank issued earlier.

While the State Bank facilitates small account holders, banks usually consider them a burden on management which requires cost.

Banking network has over 10,000 branches across the country and it seems that most of them were chasing big-fish, ignoring small clients.

A senior banker said that banks are earning profits but their spending has also increased substantially, and almost all banks reflect the same situation.

“This situation also speaks of higher inflation prevailing for the last four years and it demands more spending to do banking in this country,” said the banker.

Banks have been facing shortage of liquidity as they failed to raise deposits, particularly deposits for longer term.

The State Bank is providing incentives to banks to attract deposits at least for one year, but banks could not do it.

“Situation is now changing. The interest rate has been reduced by the State Bank which means banks cannot offer higher interest rate for a longer period that also discourages long term deposits,” said the banker.

The State Bank has twice reduced discount rates to bring it to 12 per cent per annum. Most of bank deposits are meant for six months or less than one year.

The situation is unchanged for more than five years which practically compels banks to stop lending for project financing that requires long-term availability of liquidity.

The State Bank recently forced banks to pay profit on profit-and-loss sharing accounts without any condition of minimum balance.