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Development financial institutions.

Scheduled Banks

There are at present 20 domestic banks with 7756 branches and 21 foreign banks with 62 branches in operation in the country. Total Paid-up capital of scheduled banks amounted to Rs. 33.82 billion as on 1st April, 1993 as compared to Rs. 29.29 billion on 2nd April, 1992. Their total assets amounted Rs. 1089.76 billion on 1st April, 1993 as compared with Rs. 864.92 billion on the corresponding date last year. Their assets increased by 13.1 per cent during the first nine months of the current year up to Ist April, 1993 compared to an increase of 12.0 per cent during the corresponding period a year earlier. During this period their credit showed a rise of Rs. 55.54 billion or 20.3 per cent as compared with a rise of Rs. 30.54 billion or 13.0 per cent during the corresponding period last year. They mobilized deposits aggregating to Rs. 46.74 billion during the first nine month period of the current year as compared with an increase of Rs. 40.01 billion recorded during the same period last year, indicating a rise of 16.8 per cent. Their investment in government securities, treasury bills and other investment in shares and securities increased by Rs. 13.00 billion as compared with an increase of Rs. 24.84 billion in the comparable period last year.

Specialized Financial Institutions

In line with the Government policy of liberalisation of the economy, the specialised financial institutions and Development Finance Institutions (DFIs) had stepped up their activities in terms of sanctioning and disbursing larger amounts of term loans during 1991-92 than in 1990-91. Total term loans sanctioned by these institutions had increased by Rs. 5.06 billion (18.2 per cent) to Rs. 32.84 billion during 1991-92 as against a decline of 19.6 per cent in 1990-91. Disbursements of these loans had gone up by Rs. 1.46 billion (9.5 per cent) to Rs. 16.86 billion during 1991-92 in contrast to a decline of 5.8 per cent a year earlier.

During 1992-93 (July-December) financial assistance sanctioned by DFIs for fixed industrial investment amounted to Rs. 11.98 billion compared with Rs. 20.95 billion during the corresponding period last year. Disbursements of term loans during 1992-93 (July-December) stood at Rs. 5.39 billion as compared to Rs. 7.55 billion during the same period last year. This was attributable largely to the withdrawal of the LMM financing of sugar, restriction on the financing of the textile spinning and shortage of funds with the DFIs. The DFIs continued their saving mobilisation efforts during 1992-93. The outstanding level of deposits of selected DFIs as of end June, 1992 was Rs. 46.33 billion compared with Rs. 40.12 billion as on end June, 1991.

Modaraba & Leasing Companies

Modarabas and leasing companies are already operating in the market at a sizeable scale. Modaraba companies will undertake commercial funding on short term and self liquidating basis. Leasing is relatively a new mode of financing in Pakistan. As on 31st March 1993, there were 43 Modarabas and 15 Leasing Companies in Pakistan. Modarabas and Leasing Companies mainly operate their business through various stock exchanges.

Credit Control Measures

Credit control measures taken during the first nine months of 1992-93 are as under:-

i) The advances provided by banks out of their resources for financing government commodity operations on the basis of mark up were treated as an approved security for the purpose of maintaining their liquidity ratio. This facility was withdrawn as of 19.7.1992.

ii) After the discontinuation of the system of credit ceiling, the commercial banks were subject to credit/deposit ratio equivalent to 30 per cent of their local currency deposits and 40 per cent of foreign currency deposits in lending to the private sector. Subsequently the credit/deposit ratio was fixed at 30 percent for both local and foreign currency deposits.

iii) The minimum liquidity ratio required to be maintained by banks against their demand and time liabilities in Pakistan was raised from 35 per cent to 40 per cent in August 1992 and further to 45 per cent in December 1992.

iv) The concessional financing for procurement of LMM for sugar projects was discontinued in August 1992. However, financing of sugar projects by banks/DFIs from their own resources continues.

v) It was decided on 8th August, 1992 to effect modification in the Export Finance Scheme. Under the new arrangements banks are required to employ their own funds and the refinance proceeds are held back by the State Bank of Pakistan in a special deposit account and on these deposits, remuneration at the last auction of weighted average rate of TBs is paid to the banks. The banks are also required to phase out the outstanding amount of refinance in four years.

vi) With effect from 25th August 1992, tourism projects in Murree tehsil and Chitral district were made eligible for concessional finance.

vii) To promote establishment of industrial units in Balochistan province (except Hub Chowki area), it was decided on 14th September, 1992 that a subsidy @ 3 per cent would be provided for the next three years on finances obtained for fixed investment (excluding finances under LMM Scheme), bridge loans and working capital for new units set up in the province.


viii) From 11th October 1992, investment banks were allowed to participate in financing under the scheme of LMM (local sales) subject to the fulfillment of criteria/conditions laid down by the State Bank of Pakistan.

ix) On 17th December, 1992 a number of decisions were made to facilitate the implementation of the Prime Minister's third package of incentives for the agricultural sector.

x) Effective from December 1992 mark-up on agricultural loans up to Rs. 20,000 in calamity areas was waived with extension of 1 year in recovery of agricultural loans. Liberal provision of loans was made for seed and fertilizer for Rabi crop in affected areas.

xi) The State Bank of Pakistan's 32 Day Repo rate against 6 months treasury bills and FIBs of 3 year maturity was raised in December from 14 per cent to 15 per cent.

xii) With effect from December 1992 the total exposure of the non-bank financial institutions (NBFI's)to a single borrowing entity or group was subjected to a limit of 20 per cent of its equity.

xiii) With effect from December 1992 no NBFI's can hold shares in any company of an amount exceeding 30 per cent of the paid up capital of the company or at 30 per cent of paid up capital and reserves whichever is less.

xiv) No financial assistance is provided by DFI's banks for the import of cement plants from January 1993.
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Title Annotation:Special Section: Industrial Finance; Pakistani banking industry
Publication:Economic Review
Date:Jun 1, 1993
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