KARACHI: Despite some improvements in the deposit base of the banking industry, three leading commercial banks, one from the public sector and two in the private sector, have posted Rs13.1 billion deposit contraction during July-November (FY11).This trend is widely attributed to a general shift in agents’ liquidity preferences, especially the government, which has been away from bank deposits to other non-bank sources in the current fiscal year.An SBP report stated that the government had witnessed unusual deposit withdrawals at both federal and provincial levels from large few banks during the last five months of the ongoing fiscal year. This was in contrast to net inflows during the same period in previous years.According to the report, banks’ customer deposit base grew by 1.0 per cent during July-Nov FY11, compared with a decline of 0.1 per cent in the same period last year. This growth appears to be driven by an exceptionally sharp inflow in the month of November 2010 wherein the flow of banks’ deposits increased to over Rs100 billion.“Excluding November, deposit performance for July-October F11 showed a larger reduction than in the same period in past years. From July to October 2010, deposits experienced a major decline of 1.2 per cent, compared with a drop of 0.3 per cent in the equivalent month last year; and growth of 0.1 per cent for FY07.08,” the report said.“The currency to deposit ratio, and, M3 to M2 ratio, have been rising over the last couple of years. In particular, while an increasing currency-to-deposit ratio indicates a change in preferences toward holdings; the rise in M3 relative to M2 represents the growing competition banks face in deposit mobilization from non-bank sources, most notably National Saving Schemes (NSS),” the report revealed.“The imposition of withholding tax on financial transactions and negative real returns on bank deposits are affecting the deposit growth of the industry. Higher real returns, along with the security of investments in NSS instruments have provided strong competition to banks’ time deposits in recent years – Nation