Governor State Bank of Pakistan Dr Ishrat Husain on Thursday defended the government's policy of privatising commercial banks saying it is aimed at reducing losses caused by the mismanagement in the banking sector.
He was briefing the National Assembly's standing committee on Finance and Revenue, which met here under the chairmanship of Chaudhry Anwar Ali Cheema.
The SBP governor informed the committee that the government had to inject Rs 46.6 billion to offset accumulated losses caused by mismanagement in the sector.
He said that before the privatisation of the commercial banks, the banking sector was marked with severe mismanagement.
"The banks had high ratio of non-performing loans, weak internal control and there was also lack of strong corporate governance and transparency."
Ishrat Husain said the banks had high administrative costs due to non-profitable branches, overstaffing and undue interference of employees unions.
The central bank governor informed the meeting that the government had taken various measures to turn the banking sector into an efficient, sound and market based system. He said the banks though owned, managed and operated by the private sector but would work under strong regulatory laws even after the privatisation.
He told the committee that in pursuance of a Supreme Court's verdict, Islamic banking has been allowed to run parallel to the conventional banking. A separate Islamic Banking Department has been set up at the State Bank of Pakistan and several conventional banks had opened branches for Islamic banking, he added.
The Members of the Committee who attended the meeting included Sardar Nasrullah Khan Dareshak, Malik Muhammad Saifullah Khan Tiwana, Riffat Amjad, Sardar Muhammad Jaffar Khan Leghari, Syed Naveed Qamar, Khalid Iqbal Memon, Liaquat Baloch, Muhammad Laeeq Khan, Sardar Ayaz Sadiq and Dr Muhammad Farooq Sattar.
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