KARACHI, June 1: They are 5940 in number. But they have in their bank accounts Rs334 billion—or more than one fourth of the total deposits of all the banks combined.
In a sharp contrast to it 8.84 million people have only Rs127 billion—or about 10 per cent of the total deposits of the banking system.
In other words 5940 people have an average deposit of Rs56.2 million each whereas each one of 8.84 million account holders owns an average bank deposit of only Rs14,366.
These startling figures are contained in the latest State Bank Bulletin—a central bank publication that covers all key areas of banking and is published routinely with a few months lag of time.
The above figures are of June 2001—the latest available with the SBP.
The Bulletin shows that the total deposits of all local and foreign banks operating in Pakistan stood at Rs1,276 billion at end-June 2001, whereas the number of bank accounts totalled 27.7 million.
Of this Rs334 billion were placed in 5940 bank accounts —each worth Rs10 million and above — whereas Rs127 billion were kept in 8.8 million bank accounts worth Rs10,000-Rs20,000 each. It is true that the number of bank accounts do not normally represent the number of the people holding these accounts because many people maintain multiple accounts. But since this is true for all categories of accounts it does not make a big difference if the number of accounts are taken for the number of account holders for highlighting the deposit distribution pattern in the banking system.
So the fact that only 5940 account holders out of 27.7 million have Rs 334 billion in their bank accounts shows how dependent the banking system is on the top guns. On the other hand poor financial condition of the majority of bank account holders is evident from the fact that 8.8 million people or about one third of all the depositors have only Rs127 billion or 10 per cent of the total bank deposits.
This clearly shows that smaller depositors have a much lower share in the total bank deposits than the larger ones—and their average deposit is just too nominal.
Many more interesting parallells can be drawn out of different sets of figures contained in the SBP Bulletin on account holders and deposit distribution pattern.
But let us consider only one: More than 2.3 million people have Rs51 billion in their bank accounts worth Rs20,000-Rs 25,000 each whereas only 37,201 people have Rs50.4 billion. In other words 2.3 million people own an average deposit of Rs2,217 each whereas 37,201 people have Rs135,000 each in their bank accounts.
Senior bankers cite a number of reasons that discourage small savers and create unevenness in the distribution pattern of bank deposits.
“Primarily it shows that small savers are not getting a good rate of return on their bank deposits,” concedes head of credit division of one of the three state-run banks. “But at the same time it also shows that the government has failed to rationalize the interest rates on national saving schemes. So small savers are attracted more by these schemes rather than by the banks.”
That small savers are getting very low return from the banks is a common knowledge and needs no elaboration. But the bankers contention that further lowering of NSS rates is a must for attracting small depositors towards banks deposits is too much of a demand because the government has already cut the NSS rates.
Some bankers say that while analyzing the reasons for an uneven distribution pattern of bank deposits one should also look at the opportunities available to small savers. “They not only have NSS and other government schemes but also informal avenues of investment open for them,” says the senior banker who declined to be named.
Badla or carryover transactions in the stock market is one of the major avenue of informal investment. Bankers say more often than not many small savers take out money from banks to put in Badla.
Bankers say the confidence shaking bank closures also had a depressing impact on small savers and cite the names of Mehran Bank, Indus Bank, Prudential Bank and National Development Financial Institution (NDFC) in this regard.
They say that deduction of zakat on bank deposits is also one of the factors that discourages small savers.
“The banks should not be involved in zakat deduction at all. The government should find some other way of collecting zakat,” said head of credit division of another state-run bank. He said that increasing burden of taxes on middle income group was also discouraging saving by small and medium size account holders.
On top of all the lack of any market-based reference rate to be used by the banks as benchmark for their lending rates can also be cited as a hurdle in the way of banks efforts to lure small investors. “The absence of a reference rate emboldens the banks to charge arbitrary markup on finances,” admits senior executive of a leading foreign bank. “Unless the market adopts a reference rate most banks would continue to keep the spread between their lending and deposit rates at a high level instead of lowering their cost of financial intermediation.” In that case small savers would never look up towards banks for saving money.