ALTHOUGH deposits in the national banking sector have risen by 22 per cent, hitting the highest ever deposits in the last 18 years, the banks seem to be shying away from undertaking activities targeted towards real economic growth.

Banks have generally resorted to investing in government securities, adopting a cautious approach in their financing activities fearing bad debts and avoiding recovery through Pakistan’s complex legal system. This has been the case since forever.

Presently, the government has initiated a low-cost housing scheme with reportedly Rs330 billion subsidy. The State Bank of Pakistan (SBP) has been trying to pursue the banks to go for maximum disbursement, but they are still showing the same cautious approach and are not participating wholeheartedly. Resultantly, the masses are facing disappointment, and the initiative is failing badly.

The SBP needs to take firm steps to encourage the banks by initiating confidence-building measures. Besides, the government departments, including those related to the legal system, should also facilitate the sector in case of default.

Banks are commercial institutions that are making profits, but are not ready to take risks; hence they lack the banking business’s built-in feature.

The SBP must review risk management mechanism, compliance and penalty regimes, while ensuring that the banks also do not get hurt in the process. The government must also take notice of this situation and play its role in ensuring that the real benefit is passed on to the masses and the banks are facilitated to cater to the financial needs of low-income class.

Farooq Shaikh

Karachi

Published in Dawn, January 27th, 2021

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