YOUR editorial `Bank attitude` (Aug 21) has acknowledged that banks are funding themselves ever more by borrowings from the SBP and investing the same in government financial papers like TBs/PIBs risk-free.
Thisexerciseis atthe expense of public deposit mobilisation, where the returns to depositors, under a proht and loss scheme of things, are declining steeplysavings accounts paying about 4.5pc per annum where returns are subject to withholding tax at the rate of 10pc for tax filer and 17.5pc for non-tax filer and current accounts without any returns.
The currentand savings accounts represent generally about 80pc ofthe banks` aggregate public deposits. To remedy the situation for public depositors, the following actions are suggested: 1. The SBP`s Islamic banking division circular No.3 of 2012 Nov 19, 2012, should have uniform applicability for both Islamic and conventional banks (presently restricted to Islamic banks) because all public deposits are accepted by banks and non-bank financial institutions on the basis of profit-and-loss sharing, at par with Islamic banks.
2.The SBP`s open market operations, which are currently providing the banks opportunities of excessive profits by way of interest arbitrage (borrowing from SBP at about 6.5 to 7pc per annum against the security of PIBs which are earning for the bank a return of 11-12pc per annum) needs to be curtailed.
3. The banks` cash liquidityrequirements be raised to at least 40pc of their checking accounts aggregate balances and the statutory liquidity requirements of banks be abolished in turn.
4. The government`s borrowings from the banking system be restricted to borrowings from the SBP only.
5. And finally, the SBP needs to explain from what sources does it generate funds to lend to commercial banks in trillions, whilst it does not accept public deposits.
