KARACHI, April 26: A change is taking place in the banking industry as State Bank of Pakistan has started retiring treasury bills, and raising less liquidity than the required amount.

The State Bank on Friday injected Rs385bn into the money market while bids worth Rs461bn were offered, indicating that banks would not participate in the next treasury bills auction scheduled for Friday.

Money market players said that the State Bank has adopted a policy of retiring treasury bills and raising less liquidity to tell banks not to invest in government papers.

According to the auction calendar, treasury bills worth Rs296.4bn would mature on April 30 while State Bank would raise Rs250bn on behalf of the government.

As there would be a liquidity shortage of Rs46.4bn, it would serve as an advice to banks to avoid further investment in government papers.

However, money market experts were not clear about the strategy of retiring treasury bills whether it would be long-term or short- term since the change has come after the departure of the government in mid of last month. A new government is expected to take over in May.

The previous government heavily borrowed from commercial banks and changed the entire banking pattern, putting a cork on the flow of banking liquidity towards the private sector that hit the private sector growth.

Another report of the State Bank noted that the stock of treasury bills held by the banks till mid of March stood at Rs2.675tr while non-banks bought t-bills worth Rs468bn.

A major part of the treasury bills accumulated during the last five years as government kept on spending despite low revenue growth and fall in tax-to-GDP ratio during this period.

The ratio fell even less than 9pc which forced the government to increase its dependency on borrowed money from banks.

“The change is good, but crucial for banks as neither economic, nor political situation is not favourable for growth of the banking industry,” said a senior banker.

He said that profits of banking industry have started falling since the returns on government papers fell sharply during 18 months as policy interest rate was slashed by 4.5pc during this period.

Bankers further said that the latest move by the State Bank which forced banks to pay 6pc minimum return on savings and pay this money on monthly average amount of the savings, also hit profits of the industry.

Earlier, banks were paying 6pc monthly on minimum amount.

Some banking experts, who doubt autonomy of the State Bank, said that the next government may again start borrowing from the banking system and the Central Bank could not stop this.

They said that holdings of government papers are huge (higher than Rs4.7tr) which requires long-term strategy to payback while the government has to pay massive amount as interest payments.

In the first quarter of this current fiscal year, interest payments on domestic debts increased by 60pc.

Bankers said that retirement of t-bills is a long-term process and banks must find options, other than investing into government papers to remain profitable.