All scheduled banks have registered a slight reduction of 0.14 percent in their deposits and other accounts for the week ended February 3, 2017. The total figure of accounts of all scheduled banks stood at Rs10,688.88 billion after a 0.14pc decrease over the preceding week’s figure of Rs10,703.99 billion. The net income of scheduled banks has dropped by 0.14 percent this year as the sector is grappling with the challenge of maintaining investors’ confidence amid fragile security situation in the country. After posting record growth, the Pakistan Stock Exchange has also become a victim of prevailing negative atmosphere in the country. Recent terror strikes have badly impacted the stock exchange market that has failed to maintain its upward trend and is now showing bearish sentiment. Though the Pakistan Stock Exchange (PSE) had crossed the 50,000 point barrier last month, yet it failed to maintain its momentum. Last week, PSE market index remained dull and gloomy throughout the week. Among other reasons, the political uncertainty surrounding the ‘Panamagate’ case and the tumbling law and order situation that have trapped the country, are held responsible for somewhat dismal performance of the banks. This fall in deposit growth has confounded policymakers and economic commentators for at least two major reasons. First, most banks today are offering 7.25%-7.5% interest on one-year fixed deposits, which is more than the consumer price inflation. Second, deposit flight from banks is occurring as people are opting for alternative avenues like real estate and gold for parking their savings. The boom in the stock and in the real estate markets followed by a somewhat cyclical boom and bust in these markets, plus unprecedented growth in National Saving Schemes and grey banking, made term deposits of banks the least lucrative option for customers. According to some experts, another major reason for falling deposit is that government is borrowing at higher rate from lending authority in the world market and giving depositors lesser profit in exchange on remittance. Therefore local investors are reluctant to invest in Pakistan. Inflation and less job opportunities are adding to the woes. Moreover, overseas Pakistanis have reduced sending their earnings to Pakistan. Deposits from overseas Pakistanis, similarly national saving certificate deposit rate have been drastically reduced and money flow has been diverted to other sectors. All commercial banks need to lure customers to deposit their earning by offering them lucrative interest rate. Besides, the government needs to tackle all challenges from political to the law and order for boosting the banking economy. *