KARACHI - The private sector credit off-take from the schedule banks has substantially decreased by 51.75 percent during Jul-Feb FY09 amid slowdown in the demand of working capital loans, very high mark up rates and fixed investments from the corporate and industrial borrowers for their expansion related activities. The private sector credit disbursement from the scheduled banks has declined by 146.3 billion rupees from July to February 2009, indicating banks' strong reluctance to extend credit to the private sector due to their increased participation in the process of T-Bills (treasury bills) auctioning. The domestic banks disbursed Rs136.40 billion from July 1 to February 14, 2009 as against Rs282.698 billion of last fiscal year, according to SBP monetary statistics. This trend caused the growth in loan and advances portfolio of the banks' towards corporate sector declined on account of potential liquidity risk. However, credit to public sectors enterprises (PSEs) has seen an increase of 36.652 billion rupees, depicting a massive growth of 64.83 percent during Jul-Feb FY09 as continuing delays in settlement of claims by the government has pushed the major power utility and the oil marketing company in public sector to seek finance from scheduled banks. The credit expansion by the banks to the PSEs surged to Rs56.533 billion in seven months of ongoing fiscal as against Rs19.881 billion during the corresponding period of last year. The bankers and financial experts are of the view that the expected sluggish growth in credit demand during the eight months of current fiscal has recorded because of monetary tightening and growing participation of mutual funds and other non-bank financial institutions in corporate debt papers to meet credit demand during the specific period of FY09. However, some bankers have opined that as the extraordinary liquidity shortages in the banking system have been eased off. Now, banks have more reasonable position in liquidity management and can actively participate in credit expansion activities and make investments in accordance with the private sector credit demand. The non-IMF loans which are expected to be received soon from some bilateral and multilateral lending institutions would strengthen the banks' liquidity position and promote developmental activity in the country. Accordingly, around 80 billion rupees can easily be come into banking credit system hence banks would be able to fund the probable strong credit demand of the private sector. Meanwhile, according to SBP monetary aggregates for the reviewed period of July-February 2009, the government fiscal borrowings from the State Bank dropped by 44.81 billion rupees in accordance to IMF loan condition under SBA, aimed to ensure the build-up of reserves. The government borrowed Rs301.490 billion from the SBP for budgetary support during Jul-Feb FY09 as against Rs346.300 billion in last fiscal. Thus, it is important for the government to limit budgetary-related borrowings from the SBP during the upcoming quarter of current financial year. The net federal government's borrowings soared to Rs344.534 billion in Jul-Feb 2009 as against Rs274.567 billion in the same period of FY08 while the aggregate M2 growth fell by 1.80 percent over 6.45 percent of previous fiscal. The budgetary-related borrowings of the federal government went up to Rs333.692 billion during 220 days of current financial year. The budgetary borrowings of the federal government rose by 37.946 billion rupees as against such borrowings from the same period of last fiscal. In last financial year the budgetary borrowings of the centre stood at Rs295.746 billion during the said period. This increase may put dent on the government's efforts of bringing down the level of fiscal deficit to sustainable level. According to the monetary survey from July 1 to February 14, 2009, Net Foreign Assets of banking system showed improvement whereby NFA amounted to Rs280.772 billion compared to Rs 230.387 billion. On the other hand, Net Domestic Assets amounted to Rs 365 billion during the period under review from Rs 492.442 billion in FY08, witnessing a meagre recovery in NDA growth of the banking system.