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Wednesday, 26 September 2012

Why the Govt. of Pakistan has decided to privatize the commercial banks or Discuss the advantages of regularization and denationalization of commercial banks







Govt. Of Pakistan has decided to privatize the commercial banks on the following grounds :

1.    Self Reliance :-
It is the main objective of the economic policy of the Govt. That it wants to rely on the internal resources instead of foreign aid. To meet the financial requirements Govt. Has collected the finance by selling the various industrial units and shares of commercial bank. So dependence on foreign aid has been curtailed due to privatization.

2.    Sense Of Ownership :-
After privatization the sense of ownership and confidence among the people has been developed.
For example Allied banks shares are purchased mostly by the employees of the bank. Now they are the partners of the banks, so they have shown the positive attitude and profit amount of the ABL has risen to 2.68% with in one year.

3.    Careful Lending :-

A private bank manager proves himself very careful while lending the amount because he knows that in case of any default will be held responsible. In case of loan recovery he uses his personal efforts and chances of fraud or loss reduces.

4.    Better Services :-
After privatization of commercial banks customers will find better services of borrowing and lending from the banks, because private sector provides better incentives to their employees who perform their duties more honestly and efficiently.

5.    Increase In Profit :-
The profit seeking behaviour of private sector managers will increase the rate of profit for example Allied bank of Pakistan profit increases up to 268% with in one year after privatization.

6.    Increase In Industrial Financing :-
There will be also an increase in the investment rate after privatization. Example Allied bank of Pakistan in a one year after privatization has increased the industrial financing up to56%.

7.    Increase In The Inflow Of Capital :-
Due to better policies of the private commercial banks the inflow of foreign capital will increase. Example there is 59% increase in the inflow of capital from other countries. There is 85% increase in the foreign currency deposits, with in one year after privatization.

8.    Increase In Deposits :-
People have also shown more confidence on a private banks. Employees have also shown greater efficiency and have improved the currency deposits. Example after privatization of Allied bank there is 46% increase in the deposits in a one year. Number of accounts holder has increased to 13% with in one year.

9.    Increase In Loans :-
 Aggregate lending will also increase due to privatization. Example with in one year after privatization if Allied bank lending  increased upto 31%.

10.    Healthy Competition :-
Policy of privatization will promote the healthy competition among the various commercial banks. They will compete, in deposits, loans, interest and in services. So this healthy competition will improve their efficiency.

11.    No Political Pressure :-
While issuing the loans private banks will not accept the political pressure and loan will be issued on merit. The chance of loans right off will be also reduced.

12.    Quick Decisions :-
Some times due to delay in decisions financial institutions suffer a loss. Example now in case of recovery
Quick and bold steps will be taken by the executives of the banks and such losses will not occur.

NOTE :-
No doubt there are various advantages of privatization of commercial banks but it must not lead to monopolies and concentration of wealth and no room should be left to suspect unfair deals.

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