Wealthy Pakistani savers who value both capital security and instant access to their funds were rattled by the recent regulatory change allowing banks to stop paying a guaranteed minimum return on deposits exceeding Rs10 million. Other large depositors with longer investment horizons are also likely reassessing their options as the prospect of lower returns pushes them towards higher-yield, and potentially higher-risk, alternatives.
According to the circular shared by the State Bank of Pakistan (SBP), in the first week of July, the SBP notified banks that the mandatory minimum profit rate would apply only to deposits with a monthly average balance up to Rs10m. The decision coincided with the launch of InvestPak, a digital platform that enables fundholders to buy government securities directly.
The State Bank shared extensive material on ‘InvestPak’, but its response to specific queries regarding the policy’s rationale and expected impact was pending at the time of filing this report.
The change allows banks to pay lower returns on savings deposits exceeding Rs10m. With weak competition and a handful of large banks controlling most high-value deposits, concerns persist that returns could be driven in parallel rather than by genuine market forces.
With debt roughly 67pc of GDP, the government wants to reduce reliance on banks by encouraging direct investment in government securities
Experts agree the change will affect depositors, banks, financial markets and the broader economy. Its full impact is likely to emerge by year-end, after the new rules take effect next month. Much will depend on how banks adjust returns for large deposits and how individuals, companies, trusts and institutions respond.
Some believe the move will promote competition by allowing banks to compete on products and service quality rather than being bound by a regulatory floor. They expect large banks with substantial corporate deposit bases to benefit the most.
Others caution that lower returns on deposits could further weaken Pakistan’s already low savings.
At 14.1 per cent of GDP, it is lowest in the region, compared with about 32pc in India, 27pc in Sri Lanka and 21pc in Bangladesh.
Senior bankers privately described the mandatory minimum rate of return (MDR) as an outdated tool, now retained by few countries, arguing its abolition was long overdue. A retired banker, however, supported retaining the floor for small savers.
Bankers contend the move is driven primarily by the government’s fiscal needs. With domestic debt at about Rs47.2 trillion and external debt near Rs33tr, together roughly 67pc of GDP, the government wants to reduce reliance on banks by encouraging direct investment in government securities.
“It won’t materially improve fiscal position, but will alter the funding mix and demonstrate reform efforts to the International Monetary Fund,” a retired banking executive said.
The Pakistan Banks’ Association (PBA) argues that withdrawing the MDR for high-value depositors will not affect small retail savers, while large account holders have sufficient bargaining power to negotiate competitive returns with their banks.
Syed Salim Raza, former Governor, SBP, responded despite travelling, saying the move could widen the government’s scope to place debt directly with the public. “The impact on market liquidity may be limited, as most of the roughly Rs15tr savings deposits are below the Rs10m threshold. Banks may also choose not to cut returns significantly. For depositors, shifting to InvestPak means weighing a slightly higher return against the loss of assured liquidity and price stability that savings accounts currently provide.
“Some high-value depositors may instead opt for time deposits, Treasury Bills, mutual funds or National Saving Schemes. Even if outflows occur, banks’ excess holdings of the government securities should provide a cushion to replace liquidity.
“The bigger challenge lies elsewhere: how the Ministry of Finance and SBP plan to unwind the roughly Rs15tr in SBP liquidity injections through open market operations (OMOs), unless the country’s deposit base expands substantially.
Pakistan’s deposit base is only about 30pc of GDP, well below regional peers, largely because cash in circulation is exceptionally high, around 35pc of GDP compared with regional 17pc. While digitisation can reduce transactionrelated cash holdings, it is unlikely to significantly curb discretionary cash holdings, which may account for the larger share.” Abdul Aleem, Secretary General, Overseas Investor’s Chamber of Commerce and Industry (OICCI), expressed the chamber’s support for the move, while cautioning that its success would depend on how banks implement the new framework.
“The measure is broadly positive as it promotes market-based pricing while protecting smaller depositors. It could encourage larger savers to diversify into regulated instruments such as government securities, mutual funds and equities, supporting financial-market development,” Mr Aleem said.
“However, if bank returns become unattractive, some funds may shift into foreign currency, gold, property, cash or informal channels, weakening documentation and financial inclusion.
The policy’s success will therefore depend on effective competition among banks, transparent pricing and easy access to regulated investment options,” he added.
Younus Dagha, former federal secretary and Chairman, Policy Research and Advisory Council at Karachi Chamber of Commerce and Industry, said scrapping the MDR for balances above Rs10m gives banks greater flexibility to price deposits, lowering funding costs and potentially boosting profitability at the expense of large depositors. Whether the gains accrue to banks or customers, he said, will depend on competition.
The policy seeks to channel large savers directly into government securities, reducing the government’s reliance on banks and the intermediation costs of domestic borrowing.
However, if significant deposits migrate, banks could face tighter liquidity, stronger competition for funds and pressure on lending to businesses, small and medium enterprises and households.
Mr Dagha expects banks to redesign deposit products, pricing and customer policies in response. While lower funding costs could, in theory, reduce lending rates, banks may instead retain much of the benefit through higher margins, given their preference for investing in government securities.
Published in Dawn, The Business and Finance Weekly, July 20th, 2026