KARACHI, July 6: The State Bank of Pakistan has barred Development Financial Institutions (DFIs) and Investment Banks (IBs) from availing its discount window facility.

The central bank on Friday stated that the discount facility or three-day repo would only be available to commercial banks and primary dealers.

On January 31, 2002, the SBP had allowed the three-day repo facility to DFIs and investment banks on the same terms and conditions as of the commercial banks.

Now this crucial facility which helps the institutions to square their short-term position has been withdrawn.

“It has been decided to restrict the discount facility to scheduled banks and any non-bank institution working as primary dealer,” said the SBP, adding that the new instructions would come into effect from Saturday (July 7).

Bankers and analysts said that the SBP decision would immediately push up money rates in the inter-bank market.

“The DFIs and investment banks in the absence of SBP discount facility will have to borrow from the commercial banks at higher rates to cover their short-term positions and this may slightly push up inter-bank money rates,” said Syed Shahid Iqbal, head of Treasury of Capital market at Live Securities.

“The SBP has not stopped DFIs and investment banks from investing in short-term papers like treasury bills but in the absence of the discount facility it would make difficult for them to take short-term position,” said a banker.

Some bankers said that the investment banks were regulated by the Securities and Exchange Commission of Pakistan (SECP) and it was the reason for their exclusion the discount facility while the number of DFIs had been decreasing.

The SBP also allowed the primary dealers to enjoy the discount facility. Currently nine banks are primary dealers including Pak-Oman Holding Company.

Bankers said that the latest decision would help the commercial banks to improve their income by lending to the DFIs and investment banks.