Loan default case: Court unhappy with SBP inaction

Published: March 11, 2011

Court threatens to prosecute each defaulter in banking courts.

ISLAMABAD: 

While expressing confidence in the governor of the State Bank of Pakistan, the Supreme Court seemed to be deeply dissatisfied by the progress made by the central bank in recovering money from loan defaulters, threatening to order prosecution against each defaulter.

Chief Justice Iftikhar Muhammad Chaudhry was presiding over a case in which the court took suo motu notice of commercial banks in the country writing off loans worth as much as Rs256 billion over the past several years. The court alleges misuse of banking regulations in the write-downs.

“Circular 29 was misused in waiving of loans,” said the chief justice, referring to the State Bank’s regulations on dealing with non-performing loans at banks.

The chief justice, however, seemed to be confused as to where any money recovered from defaulters would be deposited.

“The written off loans must be deposited in the national exchequer otherwise the court will order to register cases against loan waivers,” said the chief justice.

However, if recovered, under current laws, the money from defaulters would go to the respective banks from which those loans were taken in the first place. The money would appear as shareholders’ equity on the bank’s balance sheet. Nearly all banks in Pakistan are privately owned, though the government owns the largest, the National Bank of Pakistan.

The State Bank of Pakistan denies that banking regulations are too lenient. The central bank insists that, barring a few cases, all loans written off by the banks were in accordance with the SBP’s guidelines which they insist are reasonable.

The court, however, did not seem satisfied with this explanation and threatened to initiate prosecution against every defaulter unless the State Bank took action.

The chief justice, however, seemed to have kind words for the governor of the central bank itself.

“We have heard the name of Shahid Kardar. He is a competent officer. We expect that he will use his authority and recover the money,” said Chief Justice Chaudhry.

The court adjourned until March 14.

Published in The Express Tribune, March 11th, 2011.

Reader Comments (1)

  • KR
    Mar 11, 2011 - 9:18AM

    So we go to IFM and borrow money more like beg for money at a very high interest rate and then we write everything off in form of bad loans………I guess someone needs to get Noble prize of breaking very rule of modern day economics and common sense.

    In the current state of economy how can Sate Bank afford to write off Rs256 billion in defaulted loans…are you kidding me. First of all basically State Bank in rewarding very bad behavior second I believe there has been great deal of money floating unaccounted for under the table, “you scratch my back and I will scratch yours” If these people or companies are unable to pay back the loans then government should have the right to possess any and all assets to liquidate everything in order to recover the losses, you can’t just write off bad loans. Absolutely bad management at a grand scale, I guess we can blame this on America also.

    Not only we can invest in the future of our country by spending Rs256 billion wisely by building new schools or offer scholarships to the good hard working students you simply cannot afford the higher education but by writing off these loans you also create inflation and lately we all have experienced the high prices of everything, there are idiots running this country and managing the financing.

    It’s time we need to set aside our differences and think about the future of our country and remember for everybody’s sake vote for a decent person next time DO NOT VOTE JUST BECAUSE HE/SHE BELONGS TO A PARTICULAR PARTY (all the parties are the same bunch of empty promises and nothing else) question them how are they qualified for the job and how are they going to bring positive change.*

    Think and questions you political leader that’s what democracy is all about

    Government of the people, by the people, for the people, shall not perish from the Earth.
    Abraham LincolnRecommend

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