In a significant move, a Senate committee gave the green light to key amendments in the State Bank of Pakistan (SBP) Act on Wednesday.
These changes are set to reshape how commercial banks operate in the country’s underdeveloped regions, Khyber-Pakhtunkhwa (K-P) and Balochistan. The new SBP amendments require banks to lend at least 60% of the deposits collected from these two provinces, ensuring that a substantial portion of local money is reinvested to boost the regional economies.
For years, both K-P and Balochistan have struggled with limited access to credit, which has restricted economic growth and stifled opportunities for local entrepreneurs. With these amendments, the government hopes to tackle this imbalance by ensuring that banks are legally bound to channel a significant portion of their resources back into these provinces.
The amendment to the State Bank of Pakistan (SBP) Act was introduced following alarming revelations about the stark imbalance in lending practices. It was discovered that cumulative lending in Khyber-Pakhtunkhwa (K-P) and Balochistan made up a mere 1.33% of total bank lending, a figure even lower than the 2.5% rate typically allocated to charity. Despite significant funds being raised from these underdeveloped regions, the bulk of loans were being distributed in Punjab and Sindh, leaving K-P and Balochistan severely underserved.
The Senate Standing Committee on Finance and Revenue, acknowledging the issue, approved the SBP amendment proposed by Pakistan Tehreek-e-Insaf (PTI) Senator Mohsin Aziz. This amendment mandates that commercial banks lend at least 60% of the deposits collected from K-P and Balochistan back into these provinces. The goal is to ensure that the financial benefits generated in these areas are returned to local businesses and individuals, fostering regional growth.
However, not everyone is on board with the proposed changes. Both the State Bank of Pakistan and the Ministry of Finance expressed their reservations, opposing the amendment on various grounds. They warned that the passage of this amendment through the Senate and National Assembly may face hurdles, as concerns about its broader economic impact linger. Despite this, proponents argue that the move is necessary to address decades of economic neglect in K-P and Balochistan and provide a much-needed boost to their struggling economies.
Despite the committee’s approval, the bill faces opposition from key financial institutions. State Bank of Pakistan (SBP) Governor Jameel Ahmad strongly opposed the amendment, arguing that only the federal government, with the central bank’s consent, has the authority to amend the SBP Act. He also raised a significant concern: lending decisions are primarily demand-driven, meaning the central bank cannot legally compel commercial banks to allocate specific amounts of loans to any region.
The bill’s passage is uncertain, given the pushback from both the SBP and the Ministry of Finance. However, proponents of the amendment believe that it is crucial for addressing long-standing regional disparities and providing economic relief to K-P and Balochistan, which have long been overlooked in national lending strategies. The coming weeks will reveal whether the bill can overcome the hurdles it faces as it moves through the legislative process in the Senate and National Assembly.
