By Nasir Iqbal
ISLAMABAD, Feb 3: The State Bank informed the Supreme Court on Tuesday that commercial banks had written off loans of up to Rs256 billion of more than 669,000 people over a period of about 40 years. After taking suo motu notice of press reports that the central bank had quietly allowed commercial banks to write off loans of Rs54.6 billion under a scheme introduced by former president Pervez Musharraf, the court had ordered SBP Governor Syed Saleem Raza last month to collect details of all loans written off since 1971.
Advocate Syed Iqbal Haider, representing the SBP, submitted a report before a bench comprising Justice Sardar Mohammad Raza Khan, Justice Chaudhry Ijaz Ahmed and Justice Mahmood Akhtar Shahid Siddiqui.
He said the figures were provided by commercial banks after they had been informed about the order of the Supreme Court at a meeting held on Jan 2. Of the amount written off from 1971 to 2009, Rs213.794 billion was of loans of Rs500,000 or more borrowed by 23,445 people. In the category, Rs11.2 billion borrowed by 1,424 people was written off from 1971 to 1996 and Rs202.5 billion due from 22,021 borrowers from 1997 to 2009. Loans of less than Rs500,000 amounting to Rs42.8 billion borrowed by 646,374 people were also waived. Advocate Salman Akram Raja informed the court that he was moving an application on behalf of the presidents of Habib Bank, United Bank, National Bank, Standard Chartered and NIB Bank to become a party to the proceedings.
The report submitted by Iqbal Haider requested the court to ignore an earlier list compiled by 33 banks and four development finance institutions (DFIs) suggesting that Rs193.4 billion owed by 93 borrowers had been written off. Justice Ijaz said the SBP should explain under which lawful authority the loans had been written off and what legal procedure had been adopted.
The judge observed that Circular 29 of the SBP under which a huge amount had been siphoned off during the former president’s tenure appeared to be in conflict with Article 25 of the Constitution (equality of citizens). The four-page report submitted by the SBP said the list of loans written off did not include those waived by the defunct Bankers Equity and Indus Bank because both were in liquidation.
It said every effort had been made to locate the Baig Committee’s findings sought by the court but they were not available with the SBP or any other bank. The Baig Committee was appointed in 1980 to facilitate borrowers to get their mark-up written off after paying the principal amount and some other charges. The Supreme Court had hinted that it would examine Circular 29 on the touchstone of Article 25 to determine whether discrimination had been made while extending benefit to politicians and other influential people by waiving off their loans, but denying the facility to other people who had respect for the law and were willing to pay what they owed.
The proceedings commenced on a news report based on secret information given to the Public Accounts Committee (PAC) of the National Assembly that 50,427 people, including politicians, civil and military business concerns and business tycoons of Karachi, Lahore and other cities had been favoured through the scheme to waive off outstanding loans in 2002. Soon after the October 2002 elections, the then finance minister Shaukat Aziz and his financial team at the SBP approved the loan write-off scheme after succumbing to pressures exerted by certain top leaders of the then ruling party to ease financial burden on their businesses.
Instead of launching an effective campaign for recovering non-performing loans (NPL), the SBP issued an incentive scheme to the banks and DFIs in October 2002 for waiving the NPLs of organisations showing “loss” for three or more years. The cases were divided into three categories -- category A of NPLs of up to Rs500,000, category B of ranging from Rs500,000 to Rs2.5 million and category C of more than Rs2.5 million.
Politicians and large business concerns made use of the third category to get billions of rupees outstanding against them written off.According to the report, the banks and DFIs were asked to recover the maximum possible amount to settle loans falling under categories B and C through forced sale of available assets. The purpose of the scheme was to clean the balance sheets of the banks and DFIs. (Dawn)