A formal agreement between the government of Pakistan and banks was singed here on Wednesday for the issue of Rs 85 billion Term Deposit Certificates (TFCs) to eliminate circular debt, sources said. They said as per the agreement Rs 85 billion financing would be provided to the government for eliminating circular debt, out of which some Rs 82 billion would be arranged through issue of TFCs to banks and DFIs, while Rs 3 billion commitment has been made by the State Bank of Pakistan.
The disbursement is expected to be materialised on Friday, September 18. Banks' financing comprises Rs 44 billion of debts swap and Rs 38 billion of fresh cash injection into the affected institutions, sources said and added that the officials from the ministry of finance, banks and DFIs' representatives have signed the formal agreement.
The paper is likely to be issued at a rate of two plus Kibor (Karachi InterBank Offered Rate) for five years maturity and can also trade through bond automated system of Karachi Stock Exchange, sources said. They said all major banks - National Bank of Pakistan, United Bank Limited, Allied Bank Limited and Habib Bank Limited are part of the consortium, however MCB Bank has not participated in the issue of TFCs.
Federal government had issued Rs 80 billion TFCs in March this year for partial payment of circular debt. At that time government papers were issued at 1.75 percent plus Kibor with five-year maturity, which were brought to the market by a consortium of 10 commercials banks. However, this time the government has invited maximum number of banks and DFIs to meet its target, sources said, adding that presently the banks are enjoying enormous liquidity to absorb Rs 85 billion TFCs.