Top three banks hold major chunk of federal, provincial deposits

ISLAMABAD: The National Bank of Pakistan, Bank of Punjab, and Askari Bank Limited are among the top three commercial banks holding the major chunk of deposits of federal and provincial governments as of June 30, 2021. The IMF wants to transfer the massive amounts of governments' deposits lying in commercial banks into the federal consolidated funds (FCF) in the State Bank of Pakistan under Treasury Single Account (TSA)-1.

On the Memorandum of Financial and Economic Policies front, Pakistan-IMF stick to differences over pace of fiscal, monetary, exchange rate adjustments. The IMF wants massive adjustments on immediate basis, while Islamabad prefers a staggered approach.

Meanwhile, as of June 30, 2021, the National Bank of Pakistan (NBP) had the lion's share with government deposits of Rs674.985 billion out of total bank deposits standing at Rs2.418 trillion. The Bank of Punjab held governments' deposits of Rs409.081 billion out of its total deposits at Rs835.070 billion. The Askari Bank Limited (AKBL) possessed governments’ deposits of Rs257.515 billion out of the total deposits of the bank hovering around Rs790.982 billion.

Top official sources, while quoting the research of one of the brokerage research houses, said the government proposed the creation of TSA to transfer government's deposits to the SBP’s account number one. It was aimed at creating a unified structure of government bank accounts that could give a consolidated view of government cash resources. The Ministry of Finance wants to transfer the amount to the SBP to get effective control over its cash balances, resulting in the consolidation of resources in a single account which, in turn, is expected to minimize the borrowing cost of the government. It will also help government reduce its number of accounts resulting in lowering the administrative cost of maintaining them. It will also result in creating liquidity crunch for the banking system, particularly of those where deposits base is significantly contributed by the government. On the other side, the deposit attrition means higher advance to deposit ratio for banks.

It has also been estimated that if the government’s deposits were transferred to the SBP, there would be 2 percent spread that the banks would lose out between money markets interest yield and interest expense paid on these deposits. The additional returns in the wake of overnight lending by commercial banks will be reduced as well as the banks will be required to transfer money at day end to the central bank.

This scribe quizzed the Adviser to PM on Finance Shaukat Tarin and Secretary Finance Yousaf Khan and inquired if Pakistan had accomplished TSA-1 and made it operational but got no response till the filing of this report on late Monday night.

Meanwhile, official sources said that the IMF staff shared initial draft of Memorandum of Financial and Economic Policies (MEFP) with Pakistani authorities but there were differences over the pace of adjustments on fiscal, monetary and exchange rate fronts. The IMF wanted massive adjustments on immediate basis while Pakistani side was moving towards the set objectives in a staggered manner.

When contacted, Muzammil Aslam, Spokesperson for Adviser to PM on Finance, on Monday night said that the talks were going in the right direction and good news on the IMF front would come soon.