Commission demanded to probe written-off loans in Pakistan

The State Bank of Pakistan (SBP) requested the apex court to set up a commission to primarily probe into the loans written off by the banks after 1997 as its record showed that bad debts amounted to staggering more than one trillion rupees in over a decade, a Qatar-based news website reported on Sunday.

A central bank’s document showed that the banks and development finance institutions wrote off Rs280.903 billion of loans during 1971 to 2009.

The bank, however, emphasised that the commission must, “examine the amount written off by the banks from 1997 in excess of Rs100 million first and to then work back in time.”

The document showed that the net non-performing loans stood at Rs1.085 trillion during 1997 and 2009.

The SPB further proposed the Supreme Court, “to identify and determine list of cases where write-offs were granted for political reasons or considerations other than bonafide business reasons.”

Write-offs by banks and development finance institutions under 1997 Scheme- BPRD Circular No. 19 of 1997 amounted to Rs5.404 billion. Write-offs under BPD Circular No. 29 of 2002 which was an incentive scheme introduced by the SBP – stood at Rs57.100 billion.

In 2013, a three-judge commission released a voluminous report on written-off loans during 1971 and 2009 and recommended actions against the people involved. In 2008, the apex court took suo motu proceedings on the loans written off under the said circular.

In 2008 and 2009 alone, public sector banks, development finance institutions, private and foreign banks wrote off Rs74.384 billion of loans.

Privately-run banks had the highest share in this binge of clearing the balance sheet, accounting for 49 per cent in total written-off loans during the two years. Foreign banks played second fiddle with 40 per cent share.

The court sought comments from the banks to know their positions. Some of the banks had submitted the reports. But, actions against defaulters and abettors are still awaited.

Experts wondered why the SBP insisted on narrowing down the probe period when the written-off loans data spanning over the last four decades are available for the action.

It doesn’t make sense why the SBP wants to reinvent the wheel by proposing a new commission when the actions on the findings of the previous report are yet to be taken.

The SBP wants the proposed commission to direct the concerned banks to initiate proceedings in court of competent jurisdiction for recovery of such amounts.

It stressed on amendments in applicable laws and/or enact new laws similar to Section 8 of the Financial Institution (Recovery of Finances) Ordinance 2001, to recover the written off amounts.

The bank also sought amendments in the Offences in Respect of Banks (Special Courts) Ordinance, 1984 to make willful default a penal offence.

Besides, the SBP sought the support of the government to increase the number of banking courts commensurate with number of pending cases in the court.

It said the government may request the chief justices of the High Courts to assign only recovery cases to one or more designated judge to enable swift adjudication/decision of the pending suits and execution applications.

The central bank advised the government to provide adequate infrastructure, administrative and financial support to the concerned recovery court to improve their efficiency.