KARACHI, Dec 22: Piling up of banks’ money into the government papers touched new peak as it crossed Rs3.3 trillion at the end of November, State Bank reported on Saturday.

The disastrous trend to put entire banking money with the government continued despite falling interest rates on the government papers.

The scheduled banks seem to have lost the track to bank their profits from markets; instead they rely on risk free government papers that makes them profitable but at the cost of depositors who still get negative return in real terms.

The details showed that the banks invested Rs2.339 trillion into the treasury bills which is record high. The State Bank has been critical to the banks’ approach towards the investment limited to government papers but the banks remained stuck up to their approach for making risk free earnings.

The scheduled banks also invested Rs375.7 billion into Pakistan Investment Bonds (PIBs) while the non-banks investments were limited to Rs40.4 billion. The banks’ investment in PIBs was over 90 per cent.

In case of market treasury bills, the banks investment was 78.7 per cent of the total investment while the rest was invested by non-banks including corporate sector. The total investments for the t-bills till end of November were Rs2.972 trillion.

The huge borrowing and massive investment by the banks into the government papers have produced double negative impacts.

It crowded out the private sector while the government is sinking with rising interest payments on the huge domestic debt.

In another recently issued report the State Bank said it was not surprising that interest payments have gone up to unbelievable limit.

The SBP said that in the first quarter of current fiscal the year-on-year growth of interest payments on domestic debt rose to 62.5 per cent.

Analysts believe the second quarter interest payments would be even higher since the government did not stop borrowing from the banks.

During 1 July – 30 November, FY13, the fiscal authority has borrowed Rs586 billion from the scheduled banks.

The fiscal deficit of Rs284 billion or 1.2 per cent of GDP during first quarter was entirely financed by borrowings from the domestic sources.

According to the latest report, the holdings of banks and non-banks of government papers rose to Rs4.501 trillion till end November. The banks’ share in this total of Rs4.5 trillion is 74 per cent that is equal to Rs3.333.2 trillion.

Banking experts have been warning that the banks were heading towards a point of no return as the strategy to invest their entire money in government papers for last five years have kept them out of market, market activities and market sentiments.