KARACHI, May 7: The government on Monday repaid on behalf of Karachi Electric Supply Corporation Rs22 billion to a number of banks that had lent to cash-strapped KESC.

The State Bank repaid Rs22 billion to state-run (i) National Bank (ii) Habib Bank and (iii) United Bank; partly privatized Allied Bank and two banking consortia led by ABN Amro and Faysal Bank respectively. Bankers said most of the banks purchased treasury bills out of the money they got from the SBP. A senior central banker made it clear that the SBP had not forced them to buy the bills. “They came to us with the request to issue T- bills,” he said.

It could not be learnt officially how much of Rs22 billion was converted into T-bills but bankers said not less than Rs17 billion out of the total amount was invested in the bills.

The Economic Coordination Committee (ECC) of the cabinet had decided in mid-April to raise its equity in KESC by taking over its losses and prepare the power utility for privatization. The ECC had decided to issue Rs22 billion bonds to the banks on behalf of KESC as part of this exercise. It had also decided to arrange Rs8 billion fresh lending for the cash-strapped power company.

National Bank President Syed Ali Raza had told Dawn last week that a proposal was under consideration of the government to use long-term Pakistan Investment Bonds as a benchmark for pricing the proposed bonds. Central bankers had also confirmed this. It could not be learnt officially what made the government change its mind.

But bankers said some of the banks refused to get PIBs on the ground that it would increase their holding of the long-term bonds. “The State Bank has already asked us to lower our holding of PIBs. Why then we get PIBs against the money we had lent to the KESC,” said treasurer of a bank adding that the government wanted to repay the KESC loans through PIBs instead of issuing fresh bonds.

The banks that have bought treasury bills out of the money repaid to them by the government on behalf of the KESC seem satisfied with this arrangement. “We can sell the T-bills in the market and then use the funds so generated on our own,” said treasurer of one of the banks that got their KESC loans repaid on Monday. When asked why most of the banks went to the SBP to buy T-bills out of the money they got through KESC loan repayments—and why they did not prefer to hold cash he said: “The inter-bank money market is so liquid nowadays that no bank can hold unemployed cash at zero per cent.”

LENDING RATE: Inquiries made by Dawn reveal that none of the banks that have bought T-bills likes to hold the bills as such. The reason is obvious: the return on six-month bills is around 6.5 per cent and one-year bills around 7 per cent. “Do you think we will keep the money we received from KESC in treasury bills?” asked a banker. “That would be a silly thing to do. Because we were earning up to 14 per cent on KESC loans. If we now earn 6 or 7 per cent on the same amount it would drastically reduce our profits.”