The Supreme Court will decide if Circular 29 of the State Bank of Pakistan (SBP), under which Rs256 billion in loans were written off from 1971 to 2009, is legal.
Chief Justice Iftikhar Muhammad Chaudhry, presiding over a three-member bench hearing a suo motu case against the SBP, castigated the central bank for writing off the loans of defaulters whose factories are still running.
He contrasted this with the plight of the poor whose assets are confiscated if they cannot pay off loans.
The counsel for the SBP Syed Iqbal Haider argued that Circular 29 was a constitutional law that did not discriminate against borrowers.
Counsel for Allied Bank Limited Pervez Hassan also claimed that Circular 29 was a sound law and that its expiry in 2003 led to greater fraud. Hassan did admit that banks should not include loans they are unlikely to recover on their balance sheets.
On March 14, the Supreme Court had ordered the SBP to institute a commission to probe loan write-offs. At yesterday’s hearing, Hassan said that this commission should start its work as soon as possible.
Justice Chaudhry, however, said that the court would have to determine the legality of Circular 29 before the commission could become functional.
Published in The Express Tribune, May 31st, 2011.
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