KARACHI, Aug 20: The liquidity crunch created after higher- than-targeted sale of six-month treasury bills on Wednesday deepened on Friday when 15 local and foreign banks had to borrow overnight funds from the State Bank.

Senior bankers said that 15 local and foreign banks had to borrow Rs9.6 billion from the central bank at 7.5 per cent primarily to make up for shortfalls in their cash reserves.

Banks are permitted to let their cash reserves fall to four per cent of their total deposits on any day during the week but on Friday they are supposed to raise these reserves to the prescribed level of five per cent.

That was why the liquidity crunch created due to higher-than-targeted sale of six-month T-bills on Wednesday had not had a full impact on the banks liquidity positions on Thursday. Only three banks had to borrow Rs950 million from the SBP that day to meet their daily needs. But Friday being the day for averaging out reserves did intensify the liquidity crisis and resulted in Rs9.6 billion discounting or overnight borrowing from SBP against treasury bills.

SBP had mopped up Rs47.7 billion from the banking system on Wednesday through sale of six-month bills against the target of Rs35 billion. The central bank had done this to let the yield rise to 2.62 per cent up from 2.52 per cent on May 29 this year.

KIBOR FURTHER UP: Karachi inter-bank offered rates or KIBOR that had risen on Thursday in the wake of liquidity shortage created by SBP on Wednesday moved further up on Friday.