KARACHI, May 17: Banks on Friday made an overnight borrowing of Rs16.3 billion from the State Bank against approved government securities at the fixed discount rate of 9 per cent. Earlier on Thursday they had discounted Rs14.1 billion worth of securities.

Thus the inter-bank market saw a total discounting of Rs30.4 billion within two days after the Wednesday auction of treasury bills in which the State Bank had mopped up Rs38.7 billion from the system.

Senior bankers said overnight call rate remained pegged at 8.9 per cent on Thursday and Friday due to heavy discounting.

“Banks are playing hide-and-seek with the SBP,” said treasurer of a large local bank — referring to the banks practice of over-investing in T-bills — then going short — only to borrow overnight funds from the State Bank.

Most bankers admit that in Wednesday auction of T-bills the banks had submitted much larger bids than their actual level of surplus liquidity. Central bankers say they knew it but had to accept the better part of all the bids submitted to keep the T-bills rate stable. But they say the banks have paid the price of being over-excited in the auction by having been forced to resort to heavy discounting on Thursday and Friday. Until Wednesday the inter-bank overnight call rate was 1 per cent whereas the banks had to pay 9 per cent for borrowing overnight funds from the SBP.

Senior bankers said one of the reasons for a heavy discounting on Friday was that some banks had to make up for the shortfall in mandatory cash reserves. Banks may keep cash reserves upto 4 per cent of their deposits on any given day but since the weekly cash reserve requirement is 5 per cent they have to make up for any shortfall on Friday — the last working day of the week for this purpose.