Sindh Bank

The government of Sindh was finally able to cross the first major hurdle of setting up its own bank on 3rd December, 2010 when it was granted licence to operate the Sindh Bank after complying with the initial regulatory requirements of the State Bank. According to the spokesman for the SBP, the sponsor had met all the necessary requirements, including a Rs 10 billion paid-up capital, paving the way for the bank to be functional within six months.
The bank's board comprises Chief Secretary, Sindh, Additional Chief Secretary, Sindh, Secretary Finance and three reputed members from the private sector. Bilal Sheikh, who has been appointed as the first President/CEO of the Bank told this newspaper that his institution would provide all types of banking services. However, special focus would be on financing agriculture and the bank may introduce new products for small farmers. In the first phase, Sindh Bank would start its operations within the province and its network would be extended to the entire country in the second phase. Sounding a note of caution, Bilal Sheikh added that "we will not accept any political influence and the bank would be run on professional lines to make it a profitable institution."
The Sindh government, it may be pointed out, had been making efforts to establish the Sindh Bank for the last several years and awarding of licence may be showcased as a major achievement to manage its financial affairs, especially at a time when it is hard to get permission for the same because the State Bank has been increasing the paid-up capital requirements of scheduled banks and prescribing some other tough but necessary conditions in the recent past. Sparing Rs 10 billion from the provincial budget to meet the paid-up capital requirements of the Sindh Bank at this juncture was of course a tough task. However, the real challenge would be to run the Bank on purely professional lines and earn a reasonable return on equity to sustain its activities for a prolonged period.
Otherwise, the institution would, over time, metamorphose into a white elephant like other PSEs and be a permanent drain on provincial finances. Unfortunately, the experience of banks sponsored by provinces such as the Bank of Punjab, established on high hopes, is not encouraging due to the culture of patronage and corruption, inherent in government-managed organisations. Bilal Sheikh has promised to be different but only time will tell if he would be able to run the institution on purely commercial considerations, free of political interference. Focus on agriculture financing, particularly to small farmers, would further add to the difficulties of bank management because of the poor rate of recovery and the habit of the various governments to write-off such loans on not too convincing grounds. It would also not be easy for it to compete in a sector which is now considered fairly efficient and over-crowded.
Some of the smaller banks are already in trouble and trying to keep themselves afloat by mulling various options. Poor functioning of economy at present would also be a negative factor in mobilising new business. So far as the impact of Sindh Bank on economy is concerned, its establishment would be helpful if it is able to mobilise higher level of deposits in the country for financial intermediation from new sources. Mere weaning clients away from the existing commercial banks would not be able to make a positive contribution to the health of economy. In short, the Sindh Government and the staff of the bank have to make strenuous efforts to mould the new institution into a successful commercial venture and avoid certain temptations and pitfalls, failing which the expected benefits to the sponsors and the economy of the province would become a distant dream.