Central bank abolishes mandatory minimum return on large individual deposits, trusts and private companies to ease banks’ funding costs.
KARACHI: The State Bank of Pakistan (SBP) has abolished the Minimum Deposit Rate (MDR) requirement for trusts, private limited companies and individual deposits exceeding Rs10 million, giving banks greater flexibility in pricing deposits as they adjust to the withdrawal of the government’s remittance incentive scheme.
Under a latest circular issued by the central bank, the MDR will no longer apply to all deposits held by trusts and private limited companies, irrespective of deposit size, as well as to individual deposits above Rs10 million.
Previously, these depositors were entitled to receive a minimum return equivalent to the SBP’s policy rate minus 1.5 percentage points.
The latest decision follows an earlier relaxation introduced in November 2024, when the SBP removed the MDR requirement for financial institutions, public sector enterprises and public limited companies. Trusts, private firms and high-value individual depositors, however, had remained subject to the minimum return requirement until now.
Move aimed at reducing banks’ funding costs
According to a research report by Topline Securities, the policy change is intended to help banks offset the financial impact of the government’s decision to discontinue the Telegraphic Transfer Charges Incentive Scheme (TTCIS).
Under the scheme, the government subsidised financial institutions to encourage overseas Pakistanis to send remittances through formal banking channels. Its withdrawal is expected to increase banks’ funding costs, prompting the central bank to provide greater flexibility in deposit pricing.
Banking sector expected to gain
The report estimates that private limited companies held deposits worth Rs7.1 trillion as of December 2025, accounting for approximately 19.5 per cent of the banking sector’s total deposits.
With savings accounts representing around 43 per cent of these deposits, nearly Rs3 trillion is held in savings accounts. Assuming half belongs to private limited companies, around Rs1.5 trillion will now be exempt from the MDR requirement.
Trust deposits stood at Rs814 billion at the end of December 2025. Based on the same savings deposit ratio, approximately Rs350 billion of these deposits will also no longer be subject to the minimum return requirement, although analysts believe trusts typically maintain an even higher proportion of savings accounts.
Individual deposits totalled Rs17 trillion, with deposits exceeding Rs10 million accounting for roughly Rs5 trillion. Applying the 43 per cent savings account ratio, around Rs2.15 trillion of individual deposits will also become exempt from the MDR.
Overall, analysts estimate that deposits worth between Rs3.5 trillion and Rs4.5 trillion could benefit from the policy change.
If banks reduce deposit costs by 50 to 100 basis points, they could generate an estimated Rs20 billion to Rs45 billion in additional gross income, helping to offset remittance-related costs following the discontinuation of the TTCIS, which reportedly exceeded Rs70 billion.
Banks with affluent customer base to benefit
Analysts believe banks with strong premium and affluent banking franchises are likely to benefit the most from the policy change due to their greater exposure to high-value deposits.
Institutions expected to gain include Habib Bank Limited (HBL), Meezan Bank, United Bank Limited (UBL), Bank Alfalah and Askari Bank, all of which offer dedicated premium banking services.
According to the report, HBL’s Prestige Banking segment alone serves around 133,000 clients with deposits of approximately Rs386 billion.
In addition, Bank AL Habib, Allied Bank and MCB Bank maintain relatively large retail and savings deposit bases, indicating a significant share of affluent customers.
Topline Securities expects HBL, UBL, Meezan Bank, Bank AL Habib and MCB Bank to experience the most meaningful improvement in profitability. However, the brokerage noted that the long-term impact may moderate as wealthy depositors continue to move funds towards institutions offering the most competitive returns and banking services.
The report also highlighted that deposits exceeding Rs10 million declined by 3 per cent in December 2025 compared with June 2025, despite overall banking deposits increasing by 6 per cent during the same period.
Analysts attributed the decline to the government’s decision to bring interest income exceeding Rs50 million under the normal tax regime, encouraging some high-net-worth individuals to shift their investments into mutual funds.