Ongoing frequency in the injection of billions of liquidity into the banking system could well be interpreted as a severe rupee shortfall in the money market, however, the mammoth bids by the banks for buying risk-free government securities leaves one with no option but to smell a rate.
State Bank of Pakistan (SBP) is pumping billion of rupees on a weekly basis into the local banking system to avoid, the central bankers confirm, an imminent liquidity crunch the scheduled banks were nearing to because of excessive budgetary borrowings by the cash-strapped government.
According to SBP figures, during the last four-month period, from 17th July to 28th October, the central bank had conducted at least 25 consecutive reverse repo operations and had injected a huge sum of over Rs3.204 trillion to cater to the banks’ liquidity needs. Officials at the State Bank have confirmed to Profit that the injections by the regulators were due to unavailability of liquidity with the banks. But, the fact that the same cash-strapped banks come up with extensive bids when it comes to buying the risk-free and heavily-weighted government securities in the SBP auctions. Wednesday saw the banks making bids having a face value of Rs460.172 billion in response to the regulator’s tender for auctioning the Market Treasury Bills (MTBs) of 3, 6 and 12-month maturity periods.
The offered amount is more than double the central bank had targeted to increase in the Nov 2nd auction. SBP target for Wednesday’s sale of the MTBs was Rs215.359 billion, including additionally required Rs359 million, for which the primary dealers, mostly the banks, bid Rs460.172 billion. This shows an astronomical increase of 114 per cent or Rs245.172 billion when compared with the central bank’s target. Of the total bids, the so-called liquidity-starved banks offered Rs16.404 billion, Rs165.104 billion and Rs278.664 billion to buy the 3, 6 and 12-month maturities. SBP, however, accepted bids having a face value of Rs293.877 billion at weighted average yield of 11.7806, 11.7903 and 11.8470 per cent for the government papers of three respective maturities.
The cut-off yield was set at 11.7825, 11.8070 and 11.8769 per cent for the three maturity periods. The scheduled banks have long been under fire for their – what the State Bank dubbed it in one of its monetary policy decisions – risk-averse behaviour towards the growth-oriented private sector in terms of financing. Given their perceived tilt towards government-centric public sector, the profit-conscious banks are expected to pocket handsome amounts through heavily investing in the MTBs and Pakistan Investment Bonds that, according to SBP’s auction calendars, would be auctioned to the tune of Rs1.070 billion during Oct-December FY12. This trend puts enough substances behind the reports that the funds-starved government had created a sort of cyclical borrowing network through which it was raising the same liquidity from commercial banks that the State Bank was injecting into the money market.