KARACHI: The State Bank injected Rs716 billion into the banking system on Monday to cover the widening liquidity gap, but banks’ thirst for investing in government papers remained high.

Despite a large cut in the treasurybills (T-bills) rates in the auction held on Wednesday, the banks rushed to invest in the government papers. The banks invested Rs236bn in the T-bills while most of the money was invested in benchmark six-month papers.

In the auction, the banks offered Rs759bn for T-bills but the government raised Rs236bn.

Government borrowing from the banks has crossed Rs1 trillion in the last 10 months, but the banks are still eager to invest in government papers.

At the end of the first quarter (Jan-March) of this year, a number of research houses issued reports and all of them agreed that banks were in good position since their earnings have been increasing despite falling policy interest rate.

The reports indicated that banks were more satisfied since their non-performing loans were also falling mainly because their money is in safe hands of the government.

The State Bank reported that the SBP injected Rs716bn for four days at the rate of 7.51 per cent. During the Wednesday’s auction the cut-off yield for six-month T-bills was 7.29pc, a wide difference between borrowing and investment rates, apparently a loss-making business for banks.

The bankers invested Rs128bn in six-month, Rs100bn in 12-month (rate 7.22pc) and Rs8.3bn in three-month papers (7.37pc).

Published in Dawn, May 5th, 2015

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