Under the scanner: Banks to submit 40-year record of forgiven loans
A draft of the new circular to deal with written-off loans was presented to the Supreme Court by the counsel of the State Bank of Pakistan (SBP) and other commercial banks. The SBP governor Shahid Kardar gave his consent to the draft after consulting with other banks.
The Supreme Court has directed the SBP to issue the new circular today (Friday).
According to that draft circular, all banks and development financial institutions (DFI) will be directed to submit the entire record of concessions given to loan defaulters to a three-member commission. The commission was set up on the order of the Supreme Court on March 14, 2011 to examine Rs256 billion in loans written off by commercial banks in the last 40 years. The case is being heard by a three-member bench comprising Chief Justice Iftikhar Muhammad Chaudhry, Justice Muhammad Sair Ali and Justice Ghulam Rabbani.
SBP attorney Syed Iqbal Haider said in court that the central bank will issue a new circular asking the banks and DFIs to submit their entire record of transactions, including loans which were written off, remitted, reversed and waived and loan advances of Rs2,500 million and above from 1971 to 1991 and Rs25 million and above from 1992 onward. All the details will also be submitted to the commission.
The bench observed that it would be difficult for a bank to hold its own bankers responsible for extending loan facility to borrowers without adequate security checks and so an independent commission – headed by Justice (retd) Jamshed Ali will recommend steps that can be taken against them.
The counsel contended that the commission would examine all the cases of written-off loans thoroughly to determine if they were given without validity or jurisdiction or simply out of political considerations. Justice (retd) Jamshed Ali’s commission will also carry out a similar analysis to determine which loans were written off for genuine reasons.
Earlier, the chief justice expressed dissatisfaction over the draft of the new law, saying most of its points were unacceptable to the court and should be revised. However, on the assurance of the SBP, the court accepted the draft and ordered that it should become law.
The chief justice said that Section 25 A of the Banking Ordinance had been completely ignored when banks were writing off loans. He ordered the commission to start its work immediately.
Earlier, the Supreme Court directed representatives of all banks in the loan write-off case to draft guidelines for a commission looking into Rs256 billion in loans that have been written off in the last 40 years.
Published in The Express Tribune, June 3rd, 2011.
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