KARACHI, April 28: Return on deposits remained a constant factor for low savings particularly in the banks of which weighted average rate of return on deposits was less than six per cent in March.

According to State Bank’s latest report the gap between returns on deposits and advances remained on high side which means the depositors were getting negative returns while the banks were making profits at the cost of depositors’ money. The State Bank reported that in March the weighted average rate of return on deposits was 5.74 per cent. This rate was even lower than last year when it was 5.85 per cent in March 2011.

According to SBP report the rate of return on advances in the March was 13.04 per cent. The gap between the two rates was 7.34 per cent that is the weighted average banking spread for March.

The high banking spread has been a controversial issue as the central bank had been persuading the banks for higher return to the depositors.

In the second week of April 2012 the State Bank asked all banks and development finance institutions to increase the return to minimum six per cent on rupee savings products.

This decision was in the continuation of previous decision taken in 2008 when the minimum return was fixed as 5 per cent. Prior to 2008 the average return on deposits was 2.1 per cent.

The track record of banks in case of poor returns on deposits provides a reason for the growth of wealth of the banks in Pakistan. When the minimum return on deposits was set at 5 per cent in 2008 the banks were extremely critical to the decision.

However, the banks continued to earn profits each year and emerged as the shock-proof particularly in waves of financial crisis that hit the entire global banking and sunk many big global giants of the banking industry.

Once again the banks made a point when the State Bank increased the base rate (minimum return on deposits) to 6 per cent from 5 per cent.

Banks said the one per cent increased might slash their income by Rs15 to Rs18 billion while the Topline Securities calculated the banking loss as Rs17 billion.

The depositors having no voice in this affair feel that the minimum average return on deposits is still low particularly in the wake of double digit inflation.

During the last four years inflation remained in double digits. In 2008 the average inflation was as high as 20 per cent but the return on deposits remained at the lower side. However, the banks increased their lending rates on advances, even higher than 20 per cent.

Research analyst said the depositors could get benefit only if the inflation slips below 10 per cent which looks not possible during the current year or even next year.