Karachi, August 28, 2024 – In a significant move to enhance the financial security of depositors, the State Bank of Pakistan (SBP) has doubled the deposit protection limit to Rs 500,000 per account.
This development was announced by SBP Deputy Governor, Inayat Hussain, during a meeting of the Senate Standing Committee on Finance held on Wednesday, chaired by Senator Saleem Mandviwalla.
Deputy Governor Hussain highlighted the importance of this enhancement, stating, “Under the law, all bank customers will now be provided protection of up to Rs 500,000 per account.” He added that this is a substantial increase from the previous limit of Rs 250,000, which was set to provide a more robust safety net for depositors in the event of a bank failure.
The discussion at the Senate Standing Committee also covered the inclusion of microfinance banks under this deposit protection framework. Senator Saleem Mandviwalla raised pertinent questions regarding the application of these protections to microfinance institutions, emphasizing the need for clarity and inclusivity in the law.
SBP Deputy Governor Hussain acknowledged the presence of some common issues within the microfinance sector and noted that the International Monetary Fund (IMF) has set specific conditions to address these challenges. “We wish to bring microfinance banks under the Deposit Protection Law as well,” he said, highlighting the State Bank’s intention to extend the protective measures beyond just commercial banks.
The Deputy Governor also mentioned that microfinance banks, like their commercial counterparts, operate within a regulatory framework. However, the process of extending deposit protection to these institutions has been complex, partly due to the evolving requirements of international financial bodies like the IMF.
Reflecting on past efforts, Hussain noted that during the tenure of former SBP Governor Ishrat Hussain, there were discussions about enhancing deposit protection, but the IMF did not support these measures at that time. “There has now been a change in the perspective of international financial institutions,” he observed, suggesting a shift towards more supportive global financial policies.
The new legislation also provides deposit protection to single-member companies, trusts, non-governmental organizations (NGOs), and non-profit organizations. However, large companies remain excluded from these protections, a point that was underscored by the Deputy Governor during the committee meeting.
Senator Mandviwalla, in response to the discussions, questioned why local financial authorities needed the IMF’s guidance on such matters. “Why does the IMF have to tell us all these things? Why don’t we do them ourselves?” he asked, challenging the committee to take a more proactive role in financial policymaking.
As the SBP continues to work on expanding financial protections and ensuring the stability of Pakistan’s banking sector, this enhancement of deposit protection to Rs 500,000 marks a significant step forward in safeguarding the interests of the country’s depositors.
