KARACHI, June 14: At least five banks will collapse if the government implements its plan to withdraw deposits and put them in the State Bank of Pakistan in a move to get rid of the huge debt of over half a trillion rupees accumulated only during last fiscal year.

The largest deposit holder of the government and public sector entities is the National Bank of Pakistan. It has a total 42 per cent deposits (Rs250 billion) of both the government and public sector bodies like Water and Power Development Authority and Sui Southern Gas Company, etc.

The fear of near-collapse situation emerged after the reported announcement of the finance minister that the government has planned to shift its deposits from banks to the SBP.

The Bank of Punjab would receive the biggest jolt since it keeps 48 per cent of the government and public sector companies’ deposits. In terms of rupee the BoP has total government deposit of Rs92 billion.

The Habib Bank Limited would also face the worst scenario if the government went ahead with its plan to withdraw its deposits from the banks. The HBL has total government deposits of Rs98 billion, which accounts for 19 per cent of bank’s total deposits.

The United Bank Limited would also be among the banks, which would suffer most. The UBL has total government deposits of Rs78 billion or 19 per cent of its total deposits.

Bank Alfalah is also among the banks, which may suffer if the government finally takes out its deposits as the bank has a total government deposit of Rs69 billion or 25 per cent of its deposits.

A calculation made on the basis of annual report of the State Bank by Saad Bin Ahmed, an analyst at Capital One Equities, reveals that the total deposits of the federal government and its entities were to the tune of Rs763 billion. This amount accounts for 21 per cent of the entire deposits of the banking industry.

In terms of percentage, the third largest loser would be Bank of Khyber in which 37 per cent deposits belonged to the government.

The other major would be affected banks, included Saudi Pak Bank with a loss of government deposits of 21 per cent (Rs9 billion), NIB Bank 21 per cent (Rs25 billion), Askari Commercial Bank 19 per cent (Rs27 billion) and Allied Bank 15 per cent (Rs39 billion).

However, bankers and analysts both were of the firm opinion that the government can not shift deposits as it would hurt the entire economic and business cycle.

But, at the same time, the government is heavily under burden of heavy borrowings for budgetary support from the State Bank. The SBP blames the huge government borrowing for very high inflation.

“The government may get relief if it gets rid-off the SBP loan by shifting of deposits but the level of instability in the banking sector, which will result with the act of deposit withdrawal, would not even be good for the government,” said a senior banker.

The government wants to reduce fiscal deficits, which may be around 9 per cent for current fiscal year, while the finance minister in its budget speech announced to reduce it to 7 per cent. How this fiscal deficit would be reduced was not mentioned.

“There is a possibility that the government partially withdraws its deposits from commercial banks and use them to reduce the fiscal deposits,” said Abid Saleem, an analyst.

Bankers believe that even partial withdrawal from the banks, would put entire banking system in trouble.

The government has already taken several measures, which would cast negative impact on deposits of banks. It would launch 3, 6 and 12-month papers to attract deposits. At the same time, the rate on National Saving Scheme has been increased by 2 per cent. These two steps would encourage deposits to fly from commercial banks to the government papers, which will be more attractive and protected.