KARACHI: The poor participation of banks in treasury bills auction on Wednesday revealed that they are out of cash, particularly because of over investment in the last auction of Pakistan Investment Bonds (PIBs).

The banks have been discounting from the State Bank’s windows for the last three days, reflecting the liquidity crunch in the banking system.

The government could raise just Rs4.8 billion (against the target of Rs100bn) for three-month T-bills, while bids for six-month tenor (just Rs952 million) were rejected. No bid for 12-month was offered.

“For the last three days, the banks were discounting about Rs80-90 billion on a daily basis from the State Bank. This is enough to show their poor capacity to participate in the T-bills auction,” said S.S. Iqbal, a fund manager.

He said it happened because of massive investment of Rs152bn in PIBs on Sept 10 against the target of Rs100bn.

Since the beginning of this calendar year, the investors, particularly banks, kept the PIBs in focus and invested heavily. The holdings of PIBs by banks were Rs2.188 trillion at the end of August, 2014, reflecting the attraction of high-yielding risk-free government papers.

The government needs more money on different accounts this year and is expected to rely more on banks than the State Bank. During the last fiscal year, the government relied more on banks and other sources like National Saving Schemes to borrow instead of the central bank. The government borrowed Rs362bn from the SBP in FY14 which was not a big figure.

Bankers said that in the absence of foreign help and in the presence of the devastating floods in Punjab and Sindh, the government would require more liquidity to borrow from as many sources as available in the market.

The IMF would not release its tranche unless the electricity tariff is increased as per the demand, said a researcher, adding that the government is not in a position to take this decision, particularly in the current political scenario.

He said floods have further weakened the government, not allowing it to take any unpopular decision like increasing the electricity and gas tariff to meet the IMF criteria.

Moreover, the government may also not have chance to borrow from international mar­­­­ket as it did in the last fiscal year by launching Eurobonds.

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