Loan waiver case: SBP directed to take legal action against defaulters

Chief justice says bad debts will be recovered.


Qaiser Zulfiqar June 01, 2011

ISLAMABAD:


Chief Justice Iftikhar Muhammad Chaudhry has directed the State Bank to take legal action against bank defaulters during the hearing of a suo motu case on loans amounting to Rs256 billion waived off by the State Bank from 1971 to 2009.


He said it is the banks’ responsibility to recover loans from defaulters, but there seems to be a lack of interest. He said the bench would like to ensure that the money looted by defaulters is retrieved. He remarked that the court will now decide this case.

Justice Sair Ali inquired about the necessity of Circular 29 in the presence of the Corporate and Industrial Restructuring Corporation from Pervez Hassan, the counsel for Allied Bank.

He contended that Circular 29 was issued to reduce the burden of irrecoverable loans on banks but it was misused by some influential people.

He argued that they took out loans with the clear intention of not returning them to the banks. If the court annuls Circular 29, debtors whose loans were written off for genuine reasons will also be affected. The chief justice remarked that writing off loans has exacerbated the trend of accumulating bad debt. To check the evil, one has to eradicate its source. “The court will examine the legal status of Circular 29.”

The counsel contended that banks faced huge losses due to loan waivers. Banks should try to recover as much money as possible which is standard practice all over the world. He suggested that the proposed judicial commission should be strengthened to effect recovery of bad debts.

Circular 29, instrumental in writing off Rs 256 billion in debts from 1971 to 2009, expired in 2003. It was issued under Section 33 of the Banking Companies Ordinance 1962. The hearing has been adjourned till Wednesday.

Published in The Express Tribune, June 1st, 2011.


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