Sindh Bank: Have we learned nothing from history?


The Sindh Bank Ltd, sponsored by the provincial government, has commenced operations, opening its first branch on December 27, 2010. It would have been better, however, if Government of Sindh had looked at the history of public sector financial institutions in the country, before arriving to a decision. A summarised report on how such organisations have fared is illustrative of the likely trajectory of the corporation.
Till 1973, Pakistan possessed a vibrant banking sector. Then the nationalisation tide swept over the industry. From 1980 onwards, loans based on political interests began to gain momentum; bad debts and write-offs mounted. Banks also had to foot the bill for half-baked populist schemes, like the Yellow Cab programme, which caused two big banks to go under, being rendered bankrupt.
Subsequently, they had to be rescued by the State Bank of Pakistan (SBP) at huge cost to the national exchequer. The industry was finally saved through privatisation and deregulation. The fate of government-owned development financial institutions (DFI) was much worse. From the 1990s to early 2000s, heavily burdened by bad debts, DFIs began collapsing one after the other. If we look at the names of the fallen, we can gauge the enormity of the loss, including institutions like PICIC, IDBP, NDFC, ADBP, Banker’s Equity and SBFC.
What about Bank of Punjab and Bank of Khyber, established by respective provincial governments in the 1990s? Both suffered such massive losses, that they had to be bailed out by SBP through loans of Rs 10 billion and Rs 3.0 billion, respectively. Even after operating for over fifteen years, both have not been able to raise their equity sufficiently to meet current SBP requirements. Both are plagued by nepotism in top-level appointments, and in the disbursement of loans.
Reportedly, the main objective of Sindh Bank will be to provide credit to small and medium enterprises (SME) and to small farmers. However at the present moment, the country’s banks in the private domain are thriving and are providing furnishing credit to SMEs, so the introduction of another financier in the market seems to be of dubious value to the sectors being focused on. Furthermore, government-owned DFIS dedicated to financing SMEs such as Small Business Finance Corporation, Regional Development Finance Corporation, Punjab Small Industries Corporation, Sindh Small Industries Corporation, and SME Bank- have all struggled to make a real impact on the development of the sector in question.
Regarding agricultural credit, Pakistani banks have already been instructed by SBP to provide this facility. In the public sector, Zarai Taraqqaiti Bank specialises in making advances in this sector. Yet only five percent of total credit is made available to the agricultural sector. The reason for this is that credit provision to farmers is considered too risky. Noting the poor situation in this regard, the Government of Sindh can perhaps better serve the agrarian community by boosting the credit-worthiness of small farmers, though the implementation of certain measures.
For example, the government can play a more productive role by insuring that tillers are receiving quality inputs without being overcharged and the monitoring of the activities of middlemen who must pay fair market rates for products purchased. Production levels can be ramped up by the provision of adequate water supply for irrigation, warning cultivators prompt of potential insect and pest problems, providing guidance on improving yields of crops and livestock and the enhancement of storage facilities.
The legacy of flawed government policies extends to other commercial and industrial state-owned enterprises like PIA, Railways, Pakistan Steel Mills, Utility Stores Corporation, PTDC motels and restaurants and other examples. These organisations are losing over Rs300 billion annually. Therefore there is a need to acknowledge certain hard facts. There is presently no need for another bank in the public sector. The expenditure incurred in establishing and maintaining the proposed organisation would likely lead to huge losses in the future.
Lastly and perhaps, one must acknowledge that given past experience, the government is perhaps not endowed with a capacity to undertake commercial enterprises on a profitable basis. If Government of Sindh does not wind up the project, then, in the slightly modified words of Air Marshal (r) Asghar Khan, “They have learned nothing from history”.