KARACHI, Sept 10: An eminent banker has alleged that instead of sharing profits on deposits secured on a profit and loss sharing (PLS) basis banks, despite record profit, have reduced the rate of returns being paid to millions of depositors.

This was stated in a petition filed by Dr Shahid Hasan Siddiqui, chairman of the Research Institute of Islamic Banking and Finance, Karachi, against the State Bank of Pakistan with the Federal Shariat Court.

The petitioner claimed that had banks paid the same average real rate of returns to depositors between January 2001 and June 2008, and not even shared the phenomenal rise in their profitability, the millions of depositors, during these seven and a half years would have received an additional profit of about Rs700 billion over and above the amount already received by them in profit.

However, he said, the amount would have been much higher had banks shared their profits with depositors in an equitable manner as the total pre-tax profit of the banks went up from Rs7 billion in 2000 to Rs123.6 billion in 2006.

He said it was simply beyond comprehension that as against the rise of 139 per cent in deposits, 148 per cent in advances and 137 per cent in assets, the pre-tax profit of all the banks recorded a phenomenal rise of 2646 per cent between 2000 and 2006. He further said this was just not possible unless, among other things, banks reduced the rate of returns to depositors unilaterally and in clear violation of the very spirit of the PLS system.

Dr Siddiqui recalled that the SBP had stated in 1993 that payment of real negative rate of return to depositors (i.e. rate of return which is lower than the inflation rate) was in fact exploitation but SBP did not take effective steps during the last 15 years in this direction due to pressure of powerful lobbies. “The negative real rate of returns paid by banks to depositors in June 2008 was highest in the history of Pakistan. All this is nothing but sheer exploitation and travesty of justice and is accordingly un-Islamic,” observes the petitioner.

He alleged that the SBP had made the banking sector more attractive to foreigners through a policy of privatisation, merger and acquisitions, and also by allowing banks to enhance their profitability through reducing rate of returns to depositors.

Dr Siddiqui expressed the concern that “….over 50 per cent of the assets of the banking sector are now owned by private sector banks with significant foreign stake due to sale of two major public sector banks to foreigners in 2002 and 2004 and merger / acquisitions of banks as per SBP policy. The dominance of banks with significant foreign stake poses serious risks to the first Muslim nuclear power and that too with weak macro-economic indicators. This in fact reminds us of the era of East India Company and it appears that we are witnessing the re-colonization of the state of Pakistan due to policies adopted by the government and the SBP particularly during the last six years or so,” he observed.

“Banks, by lowering the rate of returns payable to depositors despite enhanced profitability, are discouraging savings which is not only having negative impact on the economy but is also enhancing Pakistan’s dependence on external resources which is not in the best national interest of the Islamic Republic of Pakistan,” the petitioner said.

He alleged that the SBP and banks discouraged savings, encouraged consumption, exploited the depositors, encouraged casino culture and speculative culture, contributed to large trade and current account deficits, fuelled inflation and enhanced saving – investment gap which were having negative impact on the economy.

The petitioner requested the court that the banks operating in the country be directed to share their profit justly and equitably with the depositors and ensure that the minimum rate of return paid to depositors was not less than the prevailing rate of inflation in the country.