Restraining NAB

The Supreme Court has interpreted certain clauses of the NAB Ordinance to mean that the graft watchdog must seek approval from the SBP governor before investigating — let alone charging — the employees of any public or private banks or other financial institutions. The opinion came in a case involving a private company which had defaulted on several loans and was offered various restructuring and rescheduling options. NAB had initiated an inquiry without first seeking the SBP’s permission and despite the fact that none of the financial institutions involved had complained.

The court noted that restructuring turns an otherwise bad loan into a viable financial arrangement, implying that this is still beneficial to all parties. In contrast, NAB’s intervention would likely force a default. It also noted that allowing NAB to unilaterally intervene in restructured or rescheduled loans would “seriously undermine the authority of the SBP” and could have “disastrous” results for the economy in general while also offending constitutional values relating to economic justice and trade. The opinion is expected to reduce the unnecessary headaches that many financial service providers faced due to the risk of loans being written off, waived, or refinanced, even if done by the book, and especially if the beneficiary was a politically exposed person.

Over the years, there have been several cases of bankers being chased by NAB over bad loans, even when the loans were given after all due diligence. On the flip side, access to loans has been a longstanding problem for middle-class Pakistanis, partly due to concerns among bankers that failure to repay could land them in jail. The SBP could be an effective firewall to ensure that financial institutions are more willing to offer loans, and access to finance for everyday citizens improves. At the same time, the SBP’s expertise could help NAB focus on more significant and concrete cases instead of fishing expeditions that only scare off potential investors and create economic anxiety. While the clarity offered by the opinion is welcome, given the precarious state of the economy, it could also bear immediate dividends.

 

Published in The Express Tribune, April 14^th, 2022.

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