KARACHI, June 6: Scheduled banks’ investment in market treasury bills has crossed Rs1.2 trillion, while they hold 67.8 per cent of the entire government papers. The trend indicates the movement of liquidity in the banking system going against the growth pattern.

The State Bank released the latest information regarding the banks and non-banks investment in the government papers, which showed that banks kept 74.2 per cent of the entire market treasury bills.

In terms of rupees an amount of Rs1.269 trillion was invested by the banks.

Both the State Bank and now even finance ministry is against this pattern of credit flow, which was mainly because of the government borrowing.

The finance minister in his budget presentation said that the government would substantially reduce its borrowing and announced that the monetary policy will not be dominated by the fiscal policy.

However, there is a little chance that the government would be able to restrict her from borrowing from the central bank as well as scheduled banks in the next fiscal year.

Analysts said the budget spoke volume about the government’s dependence on borrowing from the banking system.

The State Bank had also showed its displeasure over the government’s borrowing from the banking system, which deprived the real private sector borrowers from their genuine need of capital.

The SBP reported that the scheduled banks had also invested heavily in the Pakistan Investment Bonds (PIBs) and have a share of over 41 per cent or Rs240 billion.

It also reported that the banks had invested in Sukuk (Islamic bonds) heavily as their share rose to 91 per cent or Rs163 billion, out of total Sukuk of Rs178 billion.

While bankers argue that the investment was a need for banks to protect them from rising infected portfolio (bad debt).

The private sector blames the banks’ trend and holds them responsible for poor economic growth.

Economy is expected to grow at 2.4 per cent this fiscal.

The SBP report shows that the banks hold 67.8 per cent of the entire government papers and the amount invested was about Rs1.673 trillion till end of April 2011.

While the State Bank said this trend was against the growth pattern of economy, the government argued the high interest rate set by the State Bank proved counter productive to the economic growth.

However, as a senior banker said nothing would change despite the change in the thinking of the central bank and the government as the basis for existing economic pattern would remain the same. The banker said the budget did not change the pattern of revenue generation and expenditure.