Banking industry’s deposits have declined by Rs. 710 billion in July, mainly due to customers panicking and withdrawing money from their accounts due to FBR’s recent tax reforms.
State Bank of Pakistan’s (SBP) report says that deposits of banking industry decreased to Rs. 13.747 trillion in July 2019 from Rs. 14.45 trillion in June 2019.
According to the bankers, a significant number of customers withdrew their savings, including local currency and foreign currency, to avoid getting on FBR’s radar. The tax authority has taken a number of strict measures over the past few months, causing people to withdraw their money from the banks.
FBR had asked the banks to share the data of customers with over Rs. 0.5 million in their accounts (savings and current accounts both). These customers will be asked for their source of income and income declaration to the tax authority.
Banks, so far, have only shared the record of savings accounts with the tax authority.
A number of customers with savings of nearly Rs. 0.5 million in one or multiple accounts have decided to move their money from bank accounts to safes or park their savings in investment instruments such as National Saving Certificates, Mutual Funds, Dollars, Gold and etc.
Accountholders with millions in deposits or less than Rs. 0.5 million also withdrew their money from their banks accounts for the same reasons.
Many customers are not happy with FBR’s new policy.
An amount of Rs. 0.5 million does not show if a person is rich or evading taxes. People saving Rs. 0.5 million to Rs. 1 million in banks do it for various purposes including health, education, marriage, dowry, Hajj, Umrah, etc. Banks have not shared the data of these customers and they are already seeing the negative impacts due to low deposit mobilization.
A segment of banking customers, maintaining accounts on the name of their employees, unemployed wives and children, also withdrew their savings from these accounts and closed off these accounts temporarily. They also wanted to avoid an inquiry from FBR.
It is pertinent to mention here that deposits of the banking sector reached an all-time high at Rs. 14.45 trillion in June mainly on the account of payment against taxes. The deposits of the banking sector increased by Rs. 998 billion, including Rs. 124 billion generated under the tax amnesty scheme.
Seasonal Business Activities Also Deplete Deposits
The decline in the banks’ deposits was also attributed to a seasonal impact ahead of Eid-ul-Azha. Investors and customers usually withdraw their savings before Eid for investment in the cattle business or the purchase of sacrificial animals.
In an effort to multiply their money, investors capitalize their banks’ savings in multiple seasonal businesses including the trade of sacrificial animals and animal feeds, transportation, etc.
Last year, bank deposits decreased by Rs. 511 billion in the same season. In 2017, nearly Rs. 300 billion were withdrawn from banks in the two months before Eid-ul-Azha.
In coming months, the deposits of banks are likely to pick up gradually as investors inject their savings along with profit margins or losses in the banking system, whereas the income-driven from additional taxes will also be deposited.