Bank advances hit 3-year high

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The growth in banks’ advances to the private sector hit a three year high of 19% and exceeded the Rs10 trillion mark in the year ended December 31, 2021, after the central bank announced low-cost investment schemes and allocated loaning targets to banks for consumers of specific sectors such as housing and construction. Through budget 2021-22, the government introduced an additional tax of 5% on those banks whose ADR remained below 40%. On the other hand, a tax of 2.5% was slapped on banks whose ADR amounted to 40-50%. Besides, the central bank has directed commercial banks to allocate a minimum of 5% (Rs330 billion) of their lending portfolios for housing and construction. Likewise, it introduced a low-cost investment scheme called Temporary Economic Refinance Facility (TERF) in March 2020 to cope with Covid-19. Banks disbursed Rs436 billion under the initiative. An increase in export earnings coupled with a rupee devaluation of nearly 16% in 2021 also contributed towards an increase the deposits. The government and the central bank’s focus on increasing lending to the private sector would encourage banks to make efforts to grow their deposits instead of making expensive borrowing to meet the lending targets. Going forward, the rise in capital reserves requirement (CRR) by 100 basis points to 4% on a daily basis and to 6% for a period of two weeks would encourage banks to offer schemes to attract further deposits from customers

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