Federal govt finds resources to pick up bank loans

Sceptics smell a “pre-poll sophisticated rigging” on the part of politico-judicially embattled Pakistan People’s Party (PPP), as the cash-strapped federal government has almost completed its homework to write off billions of rupees worth of bank loans of the affluent mill owners and traders in the flood-affected Sindh and Balochistan provinces.
Whereas some conspiracy theorists, including bankers, dub the move as a “new way of rigging” the upcoming general elections, others deem it an “ideal case” for being referred to the Write-Off Commission formed by the Supreme Court to probe facts behind the billions of rupees bank worth of loans the country’s influential figures had got written off from the banks during 1971-2010.
State Bank of Pakistan (SBP), on January 20 directives of the federal government, has asked at least five prominent banks for detail on the position and volume of outstanding loans owed to them by the rice millers and traders, related to Small and Medium Enterprises (SMEs) of the calamity-hit areas of the two provinces. The banks including, National Bank of Pakistan, MCB Bank, Bank Al-Falah, Allied Bank and SME Bank, have to provide the required data up to February 3.
The official documents, available with Pakistan Today, reveal that the move was backed by the Economic Coordination Committee of the federal cabinet that, in line with a January 2 summary of the finance division, has decided that the federal government would pick up 50 per cent of the outstanding loans of the millers and traders. These loans to be picked up by the otherwise funds-starved federal government also include the mark-up on the borrowed money. “Necessary budgetary provision may be made,” reads a letter issued to the central bank by the finance division on January 20. The State Bank, in its November 02 (2010) circular, said the resource-constrained government had also allocated Rs 10 billion for a refinance scheme for the revival of SMEs and agricultural activities in flood affected areas.
The central bank has been asked to monitor the dispensation process and that the facility is not extended to those millers and traders who were defaulters of any prior bank loan.
Seemingly pro-trade and business, the development has raised eyebrows in the concerned quarters especially the banking industry which is already plagued with an all-time-high Non-Performing Loans of over Rs 620 billion. The analysts smell a rat in the political government’s intention because of the fact that the facility is targeted at the rich mill owners and traders instead of poor farmers, the real affectees. Also, question arises that why the present democratically-elected government took two years in addressing the plight of 2010-flood affectess on the eve of general elections.
“This would be materialized at the cost of government and private banks which must brace themselves for a financial impact of Rs 3 to Rs 4 billion at the end of the day,” claimed a banker, requesting anonymity.
The banker said the banks were already under fire in the apex court for writing off loans of billions over the past four decades. “The said 50 per cent would be returned after budgetary allocation that would not happen before June 2012,” the banker said.
Another banker recalled that it was last year when the banks had written off more than Rs 400 million of loans in the war-ravaged Khyber-Pakhtunkhwa province. “Such decisions have all the potential to hurt those banks that are extending progressive agriculture loans,” the banker added. A political–economist claimed that underlying motives of the fresh loan write-offs were to garner political support from influential figures living in interior Sindh and Balochistan province. “It’s a novel way to rig the forthcoming (general) polls and the Chief Election Commissioner should take notice of this pre-poll sophisticated rigging at the cost of banking sector,” the analyst commented.