Bad loans: ‘Defaulters just want to buy more time’

State Bank opposes petitions alleging harassment by recovery agents.

KARACHI: The hearing of four petitions involving alleged harassment by private agents hired by commercial banks for recovering debts was adjourned on Wednesday.

A three-member bench of the Sindh High Court, comprising Chief Justice Sarmad Jalal Osmany, Justice Faisal Arab and Justice Zahid Hamid, adjourned till December 18 the hearing.

The bench heard Syed Iqbal Haider, who represented the State Bank of Pakistan (SBP). The central bank is cited as a necessary respondent in the case because it is the regulatory body of banks.

Haider opposed the accusations and questioned the true motives of the petitioners. “These cases are a misuse, if not outright abuse, of law,” he said, adding that defaulters are just trying to buy more time.

Banking courts and high courts are already overburdened by a huge number of pending cases, Haider said. There are more than 50,000 cases awaiting decisions. Petitions such as these, which contain general allegations, are simply seeking a court case so that the recovery of loans is delayed.

Citing figures, Haider said that during the last 10 years, 8,637 cases are pending in banking courts even though according to banking laws, a decision “must be made within 10 days”.

The counsel for petitioners had focused on violations of fundamental rights because recovery agents allegedly harass defaulters. However, Haider maintained, since nobody reported an actual case to the police or other authorities, the case does not hold.

Citing various different sections and article of the Banking Companies Act of 1965, SBP Act of 1956, Financial Institutions (Recovery of Finances) Ordinance of 2001, Code of Civil Procedure, Contract Act and Constitution of Pakistan of 1973, the SBP counsel said that baseless allegations by petitioners against commercial banks cannot be taken as the ‘gospel truth’, especially since they do not offer any proof.

The lawyer defended the role of recovery agents and said hiring agents to check on defaulters is a practice adopted by banks all over the world. “This is called outsourcing and is in practice in the United Kingdom, United States and Australia,” he added. Appointing an agent to collect loans or debts is absolutely legal if their conduct is legal, he said.

Haider pointed out that “defaulting is rampant in our culture”, at which the bench observed that defaulting is also very common in the US.

If such defaulters are encouraged, it will badly affect the banking industry, concluded the SBP counsel.

The bench then adjourned the hearing till 10 am on Saturday, during which the other counsels will present their arguments.

Published in The Express Tribune, December 16^th, 2010.