State Bank of Pakistan. —File Photo

KARACHI: The State Bank again injected huge liquidity on Friday into the banking system, which is cracking under massive outflow to help the cash-starved government to run its day-to-day affairs.

The indirect government borrowing from the State Bank has been made a norm to avoid criticism.

The State Bank reported on Friday that Rs360 billion pumped into the banking system for seven days through Open Market Operations.

This huge liquidity injected into the banking system would ultimately be used by the banks to invest in the government papers. The money was injected at the rate of 11.54 per cent per annum while the banks may get 11.80 per cent by investing into benchmark six-month treasury bills.

Though the banks have been earning profit through this kind of `injected-investment`, they found it against the set rules of the State Bank. The central bank is called as the lender of the last resort but the frequent injection of liquidity for other than the purpose of lending, has been creating a sense of uncertainty among the bankers.

Despite massive financial turmoil which jolted the banking in the entire world, the local banks had been lucky that they remained unharmed mostly due to their limited and isolated banking.

Banking is still profitable in Pakistan despite poor economic performance during the last three years.

Some bankers afraid to criticise openly the central bank`s policy however said that banks had been heading towards disconnection with the diversified segments of the economy.

They said banks prefer to hire MBAs while the banking needs proper training to reach the maximum segments of the economy.

Banks making profit without efforts to develop banking as their association with the economy has been reducing substantially.

According to State Bank`s data released on Thursday, advances to private sector were almost zero during the first four months of this fiscal year as the private sector was net retiree of its debt.

During the last fiscal year most of the borrowings by the private sector were limited to working capital, no other form of lending took place that may boost economic activities.

Mohammad Imran, a researcher and analyst on the banking, said banking had been decaying since the government had emerged as the biggest borrower of the banks. Analysts believe that small banks were facing serious trouble for survival because of this new phenomenon of massive government borrowing during the last three years.

Big five banks were making profits and had been increasing their share in the banking sector, almost a monopoly on 88pc profit of the sector. They said since economy was in distress for the last three years, it did not provide small banks to perform in accordance with the market requirement. About one dozen banks are unable to meet the minimum paid-up capital requirements set out by the central bank.