A five-year-old case of giving alleged undue favour of Rs20 billion to a buyer in the amalgamation of defunct KASB Bank may take a new turn as the government is considering investigating any possible political angle in selling the bank for Rs1,000.
The May 2015 decision to hand over the defunct KASB Bank for Rs1,000 and giving Rs20 billion in almost interest-free loan to the buyer had caused huge losses to the national exchequer and the shareholders.
Sources told The Express Tribune that the Ministry of Interior and Ministry of Law were looking at whether the then PML-N government had any role in the alleged amalgamation, which was carried out by the State Bank of Pakistan (SBP) with the consent of the Ministry of Finance.
Discussions were taking place at the highest political level, said the sources.
Federal Minister for Law and Justice Barrister Farogh Nasim did not reply to the question sent to him on September 24. Adviser to PM on Interior Barrister Shahzad Akbar also did not reply to the question.
The National Accountability Bureau (NAB), which has been investigating the case since September 2015, remains unable to conclude its findings. NAB took two years to convert the inquiry into investigation, which has remained inconclusive for the past three years. NAB has neither closed the investigation nor elevated it to a reference.
“The case is at the investigation stage, which will be finalised in due course of time as no timeframe has been given in the NAO 1999,” said NAB spokesman Nawazish Ali in a response.
On September 18 - two days before the All Parties Conference, NAB issued a press statement, listing all the politicians facing corruption cases. But the case of KASB Bank merger was not mentioned in the official press release.
On May 7, 2015, the SBP allowed the merger of KASB Bank into BankIslami, after the former could not meet the statutory paid-up capital requirement of Rs10 billion.
However, the SBP gave Rs5 billion at 0.01% to BankIslami for 10 years and Rs15 billion in short-term financing. This would cause a loss of Rs3.45 billion on account of extraordinary favour to BankIslami, according to the Auditor General of Pakistan’s report.
The Rs1,000 valuation wiped out 1.95 billion shares, held by 9,000 shareholders, and major shareholders have filed a civil suit, claiming compensation from the SBP and the federal government.
“If an unbiased valuation of KASB Bank, including its investments, is made, then its valuation shall not be less than Rs14.2 billion,” according to a claim filed by the shareholders before courts.
NAB ordered the inquiry in September 2015 on the basis of a story published in The Express Tribune. Sources said NAB Karachi office had long ago recommended the headquarters to file a reference against all the accused persons but no action was taken. Among the accused were senior officials of the SBP including its former governor, AF Ferguson’s partners and a former official of BankIslami. No politician had been accused by NAB in its inquiry report.
NAB was also looking into the aspect as to why reconstruction of the bank under Section 47 (d)(i) was not considered and change in the management and board for safeguarding the interest of shareholders before its amalgamation.
The SBP invoked the Banking Companies Ordinance of 1962 to hand over KASB Bank to BankIslami in May 2015 in return for Rs1,000.
Assets of KASB Bank were not valued at the market rate to favour BankIslami and a concessionary loan to the latter, amounting to Rs20 billion, after amalgamation established that BankIslami was not in a position to bear the losses of KASB Bank, according to the NAB inquiry report.
Official documents of NAB showed that the SBP was not cooperating with NAB in the investigation. In March this year, NAB directly wrote a letter to SBP Governor Dr Reza Baqir - the sixth in the past one year to the SBP’s top officials - and directed him to produce relevant documents for further investigation.
NAB asked the SBP head to produce the record related to correspondence between the SBP and the finance ministry, draft scheme of amalgamation, internal memos, minute sheets, documents related to rejection of Chinese investor offer for investment and record of giving Rs20 billion to BankIslami.
“It has been noticed that despite repeated letters, the requisite information has not been provided to date, which reflects poor response of the SBP,” NAB wrote to the SBP governor. Non-cooperation by the SBP was causing inordinate delay in “logical conclusion of the case”, stated NAB.
“The resolution/merger transaction of KASB Bank was carried out by the SBP in compliance with applicable laws/rules. The merger decision has already undergone thorough judicial reviews at high courts of Islamabad and Sindh, and the Supreme Court of Pakistan,” said SBP chief spokesman Abid Qamar.
He said the petitions challenging the merger decision stood dismissed and attained legal finality. Civil suits filed by ex-sponsors were subjudice at the Sindh High Court, said the SBP spokesman.
“During the course of inquiry/investigation, the SBP has been responding to the queries of NAB and provided all the assistance/ information/ record required under the applicable legal framework,” said Qamar.
In April 2018, the Public Accounts Committee (PAC) also requested the Supreme Court to take suo motu notice of KASB Bank’s merger deal while terming it the biggest scandal in the central bank’s history that also tainted its image.
BankIslami also got interest-free deposit of $200 million, which had been placed with the defunct KASB bank. BankIslami has not yet returned the money to its depositors.
Published in The Express Tribune, September 29th, 2020.
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