KARACHI: Banks’ deposits have been increasing much faster than the advances during the first 10 months of the current fiscal year (10MFY21), with the half-yearly data of the State Bank showing an increase of Rs1,439.5 billion in the former.

However, the deposits growth did not reflect the banks performance on advances as these grew by Rs545.6b during the same period.

Meanwhile, investment during the same period increased by 15pc, reflecting the banks’ higher liquidity and easy approach of investing in government papers instead of making advances.

The stock of banks’ deposits in July 2020 was Rs16,121.5bn which increased to Rs17,561bn in April 2021. The deposits increased by 8.9pc during the 10MFY while advances increased by 6.7pc to reach at Rs8,119.6bn in April 2021.

For years, banks have been investing their largest part of liquidity in the government papers which are risk-free and relatively high yielding. For the last two years, the State Bank stopped funding the government which created a large space for the banks to park their liquidity and earn risk-free profits. During the calendar year 2020, almost all banks showed very high growth in their profits.

The banks from July 2020 to April 2021 invested Rs1,609bn, showing a growth of 14.88pc, while the total stocks of investment reached at Rs12.417 trillion at the end of April 2021.

Bankers said the deposits have been increasing mainly due to higher remittances in the country which went up by 29pc in 10MFY21. However, they also maintained that the deposit holders have little option to invest in the economy primarily due to severe negative impact of Covid-19 in this period.

Due to the ongoing pandemic, depositors having good liquidity decided to remain out of business to avoid any possible losses, said a banker. He added that this was one of the reasons for higher deposits.

The pandemic also affected the banks’ approach as they adopted cautious strategy for advances. Bankers said that despite this cautious approach, advances were in better shape as they noted a growth of 6.7pc.

Advances were extremely low during the first five months of the current fiscal but it changed suddenly in December when these increased by Rs331bn compared to November 2020.

Published in Dawn, May 27th, 2021