KARACHI, Sept 24: State Bank on Tuesday pumped more than half a trillion rupees into the banking system emptied by the government through borrowing.

The State Bank carried out open market operation to offset the impact of massive government borrowing from banks and injected Rs561 billion. The government made record borrowing of Rs324 billion in the first two months of the current fiscal year leaving no option for the private sector to make borrowing from banks.

This huge injected amount reflects the liquidity crunch in the banking system while it also shows banking trend in the country.

The banks are not ready to consider State Bank’s advice to extend loans to the private sector instead of only investing in government papers.

The government which makes the banks profitable with zero risks has widely damaged both economic growth as well as banking in the country.

Banking experts said the situation represents both poor generation of revenue by the government and low mobilisation of deposits by the banks.

Bank deposits are not enough to buy entire security papers, and for this State Bank used to pump billions in the banking system.

However, this was for the first time that the State Bank injected more than half a trillion in one go. So far the government did not use the opportunity to borrow from the Central Bank.

Bankers believe that this opportunity would be used soon since banks are out of cash.

The injection of Rs561 billion is a temporary support to banks’ liquidity problem as it is only for four days but the State Bank has been repeating the process each week for four or five days.The government has planned to borrow Rs1.5 trillion in the first quarter through banks by selling its paper and inviting banks to invest for 3, 6 and 12 months maturity papers. Some serious questions are being raised by bankers. They feel that banks are directionless and losing their ability to penetrate in economy and helping it grow.

At the same time, the government’s reliance on private money could create situation like European banking crisis that ultimately proved fatal for the banking industry.