DOES Sindh need a provincial bank of its own to improve the economic conditions of its poor people? Can such a bank make a material difference to the miseries of the poor in the province? Whether it needs an official bank or not under the control of the Sindh government, the chief minister Dr Arbab Ghulam Rahim thinks, ‘it needs one to pursue effective planning through which the economic conditions of the poor people could be improved.’
He is not the first chief minister to think so after the Punjab government set up its own bank and the Frontier government the Bank of Khyber.
Jam Sadiq Ali as chief minister was the first to make a serious move to set up such a bank in Sindh. But he chose the wrong persons to head Mehran Bank. Yunus Habib of the Habib Bank was his banker but he soon faced serious charges and was prosecuted. He was influential enough to have VIP comforts in jail.
Poverty in Sindh is real, but if one more bank comes in a province with too many and varied kinds of banks it will not make any material difference to its poor. He may be well advised to set up a provincial micro credit bank if a similar federal bank already established is not regarded by him as adequate for the purpose.
What is more likely is a new Sindh bank would be a highly politicised bank both in staffing and loan-giving. At the time, the Punjab Bank was established there were not as many banks as there are now. And when the Khyber Bank came up in Peshawar there were even fewer banks in the Frontier province where the money-lenders ruled the roost with giddy interest rates.
Sindh’s problem is not have enough banks; but having too many banks. So a large number of bank branches have been closed down as there were too many in one area. And if there is real need for new bank branches in any area of interior of Sindh the existing banks are not only ready but eager to open new branches.
Now after the federal government has privatized major public sector banks like Habib Bank, United Bank, Muslim Commercial Bank and Allied Bank, while the largest development finance institution, the NDFC, went burst, are we going to have a Sindh Bank in the public sector with all its familiar abuses?
What would the World Bank, which advise on banking reforms and gives us very large funds for that, would have to say about a new bank, in the public sector under a controversial provincial government?
The capital base of banks has been rapidly raised by the State Bank of Pakistan. First, it was fixed at Rs2 billion, then at Rs4 billion and soon then it was raised to Rs6 billion, if reports are correct. Has the Sindh government that kind of large funds to put it up when it is too indebted to the federal government and the State Bank of Pakistan and when it has not been able to pay many of its power and water bills. And if a new bank comes up who will bear the capital burden which goes on increasing so as to eliminate small bank’s and make them merge into larger banks, and serve their clients better?
Now if Sindh has its bank, Balochistan will also demand to have its bank and that can’t be refused. In fact there is a demand for a Balochistan Bank in the composite demands for a political settlement in the unsettled province. That bank, if it comes into existence, may not operate according to the State Bank of Pakistan guidelines.
The other alternative can be privatizing the Punjab Bank and the Bank of Khyber as has been done with the federally controlled banks and more are due to undergo the same process.
Karachi which is the capital of Sindh has too many banks, national and international and specific task oriented. In fact some of the old banks have shut down some of their branches because of their clustering in some business centres or there were not enough business for so many of them in just one area.
And some of the new banks like the PICIC Commercial Bank are opening large number of new branches with a great deal of fanfare. If the Sindh government wants new branches to be opened in some areas where there are not enough banks, and can insure the safety of such institutions and its assets and personnel, it could ask such over eager expansionist banks to open branches in the agreed areas.
Sindh bank will now be too costly because of the high real estate prices and rent and establishment costs. There is the fear that a Sindh Bank under the present dispensation could be mismanaged as many bank branches in the interior of Sindh are.
Right now the government is investigating the Rs 700 million fraud in the Zarai Tarquati Bank in the Khairpur District. Involved are senior officers of the bank who are reported to have issued loans in the name of dead persons, convicts in jail for very long. Three regional managers of the bank, about eight sub- managers, nine managers, six accounts officers 20 MCOs and 16 cashiers are reported to be involved in the massive fraud. The bank manners were reported to be harassing poor farmers to return the loans while they did not get the loans but their names were used for getting the loans.
Hence the government has to be careful about permitting small banking operations which may be highly politicised. Is the government going to permit such banking operations or conform to the prescriptions of Basle-I which are rigid. Pakistan has agreed to enforce Basle-II, according to the governor of the State Bank of Pakistan Dr Ishrat Husain.
Even otherwise the issue of massive corruption in the Sindh government with the chief minister and former minister Imtiaz Sheikh accusing each other of large scale corruption remained to be investigated through federal intervention. Let that issue be settlement and the guilty punished before the Sindh government opt for a bank of its own which may open the door wide for new vistas of corruption.
If reducing poverty and unemployment is the aim of the government while setting up the Sindh Bank, it is well advised to ask for larger allocation and wider distribution of the micro- credit.
What Sindh needs now is an ‘economic commission’ or task force which will look into its finance — revenue collection, utilization and fiscal efficiency as a whole, auditing of the revenue collection and expenses. Such a task force could suggest systems and procedures which result in full collection of revenues and their proper and timely utilization. Auditing of Sindh accounts should also be thorough and the public accounts committee (PAC) of the Sindh Assembly should have open hearings so that the people can know what is happening to their revenues or how well they are spent.
If Sindh still needs an official bank, the National Bank is there now and that is being made to function more efficiently by its president Ali Raza. NBP could to look after the genuine needs of Sindh with greater alacrity.
And if corruption in the Sindh government is removed with singular tenacity, the revenues of provincial government could be far larger. And wiser and honest spending will increase the resources available at the disposal of the government to fight poverty better and make it a happier province.