Karachi: The State Bank of Pakistan (SBP) has amended its rules regarding the Minimum Deposit Rate (MDR), removing the requirement for Trusts, Private Limited businesses, and individual deposits exceeding Rs10 million. This regulatory change comes as a significant shift from the earlier policy where only financial institutions, public sector enterprises, and public limited companies were exempted from MDR, with other entities still receiving an MDR of the policy rate minus 1.5%.

According to JS Global, the central bank's latest circular outlines the removal of MDR applicability across these categories, aiming to compensate banks on the remittances cost side. This move follows the government's discontinuation of the Telegraphic Transfer Charges Incentive Scheme (TTCIS), which previously provided a subsidy to financial institutions to encourage remittances through formal channels.

The impact on the banking industry is substantial. The total non-MDR deposits from private limited businesses, trusts, and individuals are expected to rise significantly, potentially increasing the industry's income by up to Rs20-45 billion. This increase could help offset the estimated Rs70 billion cost burden due to the cessation of the TTCIS. The adjustments are likely to benefit banks with affluent customer bases, as these institutions can offer more competitive returns and services.

However, the deposits in the Rs10 million and above category have experienced a decline, attributed to the government's decision to include interest income of over Rs50 million in the normal tax regime. This shift has reportedly led to funds moving towards mutual funds. The banks expected to benefit most from this regulatory change include HBL, UBL, MEBL, BAHL, and MCB, given their established prestige and premium banking services.