The balance sheet footing of the banking sector according to the State Bank of Pakistan (SBP), was enlarged by 11.5 percent in H1FY24, chiefly driven through investments in government securities. The Government of Pakistan stayed he primary borrower of banking money, which doubled the profits of the entire banking industry in FY2023. The government has also planned to borrow over Rs9.3 trillion from banks in FY2025, chiefly to service its domestic debts. The fall in private sector advances was significantly lower than H1FY23. On the funding side, deposits rose by 11.7 percent in H1FY24, with a major impetus from saving and current deposits.
In our country presently SBP has reviewed the digital payment infrastructure working and has expressed full confidence that banks and relevant vendors are well capable of bearing the government’s pressure to rapidly migrate to digital payments from cash-based transactions. No doubt our digital banking infrastructure was as strongly capable of taking high pressure as that of India, recalling that the neighbouring country efficiently coped with the cash crunch in 2016 after its government demonetised almost 86 percent of banknotes including notes of Rs500 and Rs1,000 denominations to check corruption.
Experts declared a war on cash in an attempt to bring back the huge currency in circulation, estimated at Rs9.3 trillion, into the banking system and boost tax revenue collection. The Government at present is paying salaries to greater than 90 percent of its employees in the federal capital Islamabad via Raast. The federal government employees’ salaries, processed via Karachi, were handled by Raast for the first time last month. The number of financial transactions via Raast has now spiked to 2.5-2.6 million a day from 1.8 million in June 2024.
SBP revealed that the initial Rs1 trillion worth of financial transactions on Raast were done in 336 days while the last transactions valuing at Rs1 trillion were made presently in only 22 days. The trend shows how fast the instant payment system is growing. Over the past five years, the payment transactions by mobile wallets, branchless banking, Electronic Money Institutions (EMIs), fintech and e-commerce had significantly jumped. The top two branchless banks alone are making 65 percent of the total transactions via Raast, while EMIs are playing a significant role in digitalising the payment system. There are more EMI players in the pipeline.
Experts also said that worldwide practices suggested that digitalisation of any entity would increase sales by 10 to 20 times and urged banks to continue to invest in technology to thrive, upgrade their businesses and support economic growth. Almost 84 percent of financial transactions were being done via online banking, while only 16 percent were conducted over the counter (OTC). In terms of the size of funds, however, merely 17 percent of financial transactions are being made digitally, suggesting the fear of losing money and the lack of trust in technology, which is not letting people make big transactions via digital means. Experts recorded that approximately one-third of the cash of around Rs9.3 trillion remained in circulation, causing high inflation and fuelling an informal economy.
Studies suggested that a growing and dynamic banking sector is essential for revenue generation in Pakistan because growth in the banking sector and the real economy mutually reinforce each other.
The banking sector in our country constitutes the core of the financial sectors.
Private sector investment and consumption should be seen as the key drivers of the revenue generation and must be supported through growing financial intermediation and services, including not only banks but also non-bank financial institutions, and debt securities and the stock market. Pakistan’s banking industry and the broader financial sector has enormous potential to support faster economic growth and revenue generation. When compared with other emerging market countries (EMCs), these sectors remain small in relation to the economy. In recent years, a wide range of important structural reforms already have taken place but more reforms are needed for the banking sector to grow into its full potential for supporting strong and sustained economic growth and revenue generation.