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Interest rates have been jacked up by the central bank once again. This is fourth major installment of increase in the fiscal year to date. And from it seems it may not be the last considering the language of the central bank’s latest Monetary Policy Statement appears angrily hawkish.

Notwithstanding the pains the economy is suffering at both and macro and micro level, one important question not being frequently asked is: are banking customers benefiting from the rise in interest rates. The answer is not a resounding yes, when in fact it should be.

Save for some heavy account movements by a few savvy savers who have better understanding of the pulse of economy and different options for saving and investments, fixed deposits at banks and individuals’ investments into T-Bills and PIBs through banks are not rising at a pace that such steep spikes in interest rates should effectively lead to. This is in part because Pakistanis at large are not financially literate, not at least as far as banking and other facets of formal financial sector is concerned. But financial literacy isn’t the only challenge. People are simply too busy as well.

Consider this: a typical in-person banking transaction of going to the bank to book fixed/ time deposits, or invest in government papers through Investor Portfolio Services (IPS) account takes at least about 30-45 minutes to say the least. And that’s if you are lucky: if your personal banker or your branch manager knows about the products; is willing to provide timely service; and does not dissuade you from making timely decisions by ensuring ease of doing business. This means that job goers and MSME businessmen alike (big players call bankers to their office or homes) cannot always find time to slip away from daily work life and make investments in government papers or book time deposits.

Ergo, banking customers are losing their money’s worth. At the one end, inflation is eating their savings like a rat gnawing wheat bags. At the other end, the lack of financial literacy, busy schedules of modern citizens, amid stale bouquet of services by bankers is preventing banking customers’ money from growing.

To fix this wrong, the central bank first needs to immediately launch awareness campaign aimed at promoting time deposits, and to attract individual investments into treasury papers through IPS accounts. It should also rap on the knuckles of bankers to ensure that they are facilitative to those customers interested in saving and investment routes. In that light, it is also important to ensure lower minimum investment requirement for investments in treasury bills through IPS accounts.

The media and marketing hype adopted by the central bank in recent years for a number of products suggests that it is truly capable of promoting time deposits and IPS accounts as well; it really boils down to the question of will.

It is truly unfortunate that personal bankers at priority banking services of even multinational banks of large branch networks (or even their branch managers) have no or little knowledge of IPS account to be able to swiftly facilitate their customers, whereas other put off customers by raising the minimum investment amount: clearly not every saver has one or two million to invest in IPS – some may have just three or four hundred thousand, which means investors can buy 3-4 PIBS with this amount.

As a second step, the central bank needs to ensure that banks offer time deposits and IPS accounts to their customers through click of a few buttons via their respective website and mobile apps. And lastly, the central bank needs to speed up the licensing process of digital banks that can perhaps better channel savings into investments; indeed, the world is moving too fast for legacy banks to learn how to provide service.

Ensuring that more and more banking customers channel their idle money into saving and investment products can help both reduce aggregate demand (which is the need of the hour these days), and also in the case of IPS accounts, help the government get better pricing, which is a key aspect of effective debt management. Hope the stakeholders would heed this, and soon!


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SAMIR SARDANA May 26, 2022 10:30pm
The Bank Scam - Part 1 Y banks take 45 minutes,to make a FD ? Y banks 5 minutes,to OPEN a new account ? Y banks NOT allow, FD online via online banking ? Y banks not double, the ATM reach ? Y banks pay close to 2-4% interest on savings accounts ? Y banks pay 2-4% interest on savings account,on the LOWEST BALANCE,BETWEEN THE 7TH & 23 RD DAY,OF A MONTH ? Coz,because banks know that retail will not wait in a line,& laws of inertia & laziness,will keep money rotting in savings accounts - and that keeps bank interest cost, as low as possible. THEREFORE, THE BANK MAKES THE MAXIMUM PROFIT,AS BANKS BUY SHORT & SELL LONG.They raise funds short term (savings - at the lowest ROI) & lend long term (to projects - at the highest ROI) Low ATM penetration,increases the cost of cash withdrawal to a client - & shifts him to the "DEBIT CARD" generation - which gets a 2% pay off to the banker,& a GST flow to the state That brings the client into the bank usury plot -for life ! dindooohindoo
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SAMIR SARDANA May 27, 2022 01:25am
The Bank Scam - Part 3 Ever wondered in a trip to a bank,the following Y the bank asks you to invest in Funds for the "LONG TERM" Y the bank asks you to invest in INSURANCE for the "LONG TERM" Coz,in the long term you are DEAD (Diseased,Epileptic,Asinine and Demented) In India,LIC has 30000 crores of paid up insurance - where the policy holder and nominees have DISAPPEARED ! There is another 40000 crores of similar bank deposits and unclaimed lockers. But Y THE LONG TERM ? Long term con allows the bank to peddle equity funds - which have loads,and which pay an upfront 3-5% commission to the banker,for fresh deposits.If the investor exits,and bears the load - the banker has to refund the commission.HENCE,THE LONG TERM. Banks are busted and living off an inflated real estate and stock market.They DO NOT want to lend.If they take deposits - they will HAVE TO LEND.They want fee based income.What better than conning bank clients,to invest in equity and insurance ? dindooohindoo
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SAMIR SARDANA May 27, 2022 01:32am
The Bank Scam - Part 4 Ever wondered in a trip to a bank,the following Y the bank asks you to invest in EQUITY Funds or BALANCED FUNDS or EQUITY LINKED INSURANCE PRODUCTS for the "LONG TERM" ? Y do banks not ask you not to invest in long dated GSecs or a fund which invests in T Bills & Gsecs ? Nein - It ain't the commission ! The inflows into equity funds,flows into the equity markets,& inflates stock prices - and thus,banks & FUNDS,can avoid M2M losses on equities,banks can avoid margin calls on loans against equities and BANKS CAN LEND MORE ON LOANS AGAINST EQUITIES. BANKS ALSO USE THESE RETAIL INVESTORS IN FUNDS,TO ROUTE the money,TO VC/PE etc., who co-invest in bank funded projects to LOWER THE BANK EXPOSURE & RISK There is 1 FUNDAMENTAL GAIN of Insurance ! The insurance is liened or beneficated to the bank - AGAINST THE LOANS to the retail investor - and the banks prays that the investor lives long enough for the bank to earn interest,and dies,to repay the dues.
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Sohail May 27, 2022 07:46am
Thanks for the article.
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