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Cover Story

By Syed M. Aslam
Nov 22 - 28, 1999

November 16, 1999 will be remembered as a day of reckoning in Pakistan. The influential and powerful loan defaulters were taken to task. The massive politically motivated loans have bled the national economy and destroyed the nationalised and semi-nationalised banks and public sector Non-Banking Financial Institutions.

When the Chief Executive, Gen Pervez Musharraf extended a four-week deadline to loan defaulters on October 17 he also assured an otherwise sceptical people that ‘Our action will speak louder than our words.’ The deadline to pay up the loans, the bulk of which was politically motivated instead of commercially viable, was taken by the people with a pinch of salt who have heard similar promises of stern action in the past without ever witnessing them materialised.

For four weeks Pakistanis counted every single day towards the November 16 deadline to see if the new military setup, which promised a stern crackdown, will deliver. The influential loan defaulters had make it a habit to have their loans rescheduled and finally written off, in many cases time after time. They had also avoided any, and all, half-hearted action in the past with complete impunity. Ordinary Pakistanis who have find it almost next to impossible to get even a small loan from the nationalised, semi-privatised banks and DFIs the issuance of huge loans and their constant rescheduling and writing-offs were disgusted. They, however, were unable to do anything about it. A strong public resentment kept on developing.

When the deadline ended at 6 pm on November 16, the banks and the financial institutions made a cash recovery of over Rs 6 billion which amounted to just 3 per cent of the total non-performing loans of Rs 211 billion including defaulted loans of Rs 146 billion. Non-performing loans are categorised as those loans which are not paid for 90 days or over while defaulted loans are those which have remained unpaid for more than a year. The technicality, however, meant little for the action-thirsty masses whose lives have become unbearable due to constantly increasing cost of living over the years.

Habib Bank Limited, the largest local commercial bank in the public sector, recovered Rs 1.629 billion in cash including payment which regularised a non-performing loan portfolio of Rs 5 billion. The recovery amounted to just 4 per cent of the total non-performing loans of Rs 41 billion. It is even less impressive when seen in the context of the massive volume of non-performing portfolio of Rs 41 billion and the fact that HBL earned a profit of Rs 1.5 billion during last year.

Sources in the Recovery Cell of the National Bank of Pakistan (NBP) told PAGE on November 17 that the bank has recovered Rs 915 million in cash from the defaulters by the end of the deadline. They said that the amount of the total non-performing loans stood at Rs 23.5 billion of which Rs 4.5 billion were owed by a number of public sector corporations while the rest of Rs 19 billion was owed by the private sector. Of the Rs 19 billion owed by the private sector the Rs 2.7 billion was owed by the now defunct Mehran Bank, a private local bank which was took over by the NBP. PAGE was also told that loans worth Rs 5 billion were also regularised by the defaulters. The total non-performing portfolio of Rs 16.3 billion has thus been reduced to Rs 12 billion minus Rs 1 billion in recovery plus Rs 5 billion loans regularised under a mutually settled time-frame.

Talking to PAGE Naeemuddin Khan, the chief special assets management division of United Bank Limited, said the UBL recovered Rs 800 million in cash and restructured loans worth Rs 1.4 billion. Putting the total non-performing loans at the UBL at Rs 21.65 billion he said that the Bank regularised the loans at an average downpayment of 15-25 per cent with the balance of the loan repayable anywhere from 3 months to two years depending on the merit of individual cases. The payments on the regularised loans are either monthly or quarterly and are allowed against securities plus post-dated cheques the bouncing of which are subject to criminal prosecution.

He said that some of the major loan defaulters of the HBL like Fazal Group, Super Spun, Tawakkal Group (two of whose members were arrested in the November 17 crackdown) have fled to Canada, Switzerland and the UK.

Calling the stern action against the defaulters, just 300 of whom owes 25 per cent or Rs 50 billion of the total non-performing loans from all the banks and DFIs combined, as ‘the best thing that has ever happened to Pakistan’, he cautioned against the demerit of a prolonged action. There should one good massive sweep to arrest as many defaulters as quickly as possible to let the banks and the DFIs to divert their attention to more important affairs, he added.

Naeemuddin was optimistic that the arrest of dozens of big and influential defaulters would help send a clear signal to the rest to pay up the loans. He said that it will result in the better percentage of the recovery in the near future, particularly with the establishment of National Accountability Bureau (NAB) and the amendement of its Ordinance.

The crackdown

The fact that a small cash recovery of just over 6 billion was made when the deadline expired at 6 pm on November 16 clearly show that the majority of defaulters ignored the deadline. While many of the big defaulters had already made good their excape outside the country much prior to the Army takeover on October 12, others still inside the country remained oblivious to the warning.

On November 17, 21 major bank defaulters were arrested across the country during the first wave of the crackdown. The arrested defaulters included industrialists, parliamentarians and high officers of the armed forces. They included former Punjab chief minister, Manzoor Wattoo; suspended senator and former minister Islamuddin Shaikh; Air Marshal (retd) Waqar Azim; former members of National Assembly Nawaz Khokhar and Jafar Leghari; former Sindh ministers Nadir Ali Magsi and Agha Siraj Durrani; former federal minister Anwar Saifullah; industrialists Asif Sehgal and Nasim Sehgal; businessmen Zakaria Ghani and Abdul Shakoor Kalodi.

Besides the 21 defaulters arrested the National Accountability Bureau (NAB) also issued a list of defaulters who were already under custody. They included deposed prime minister Nawaz Sharif; his brother and former Punjab chief minister, Shahbaz Sharif; Saifur Rehman; his brother Mujeebur Rehman, Brigadier (retd) Imtiaz; Asif Zardari, the husband of former prime minister Benazir Bhutto; and Ramesh Udeshi.

In addition to those arrested and already in custody, the Chief Executive’s secretariat also issued a list of persons who have already been proclaimed offenders including former prime minister Benazir Bhutto; Admiral (retd) Mansoorul Haq; former Sindh chief minister Abdullah Shah, former bureaucrat Salman Farooqi.

The next day, November 18, three more major defaulters were arrested. They were Naveed Qamar, former finance minister and ex-chairman of the Privatization Commission in the Benazir government, Waqir Akhtar Paganwala and Agha Shahabuddin. Some of the defaulters arrested on November 16 were also released the same day when they repaid their loans.

The government owned Pakistan Television Corporation did not mention any arrests on Friday, November 19.

Imprudent bankers

A disturbing question which arises here is that how such huge loans were issued without proper securing of collateral. The ordinary Pakistanis for whom securing loans from the nationalised, semi-privatized banks and DFIs have always remained an impossible task are unable to understand how the local banks provided such massive loans in the first place.

Though the cash recovery of loans by the banks and DFIs increased by Rs 2.5 billion to Rs 8.5 billion on November 18, a massive portion of the non-performing portfolio still remains outstanding. The arrest of the big loan defaulters, including many influential politically powerful names which have remained untouched to bleed the local banks with complete impunity thus far, have a clear signal that such corrupt practices would not be tolerated anymore. It has done a miracle to restore credibility and confidence not only in the banking sector but also in all other sectors of the economy. It has shown the will and the commitment of the government that the days of plunder are over.

With many defaulters on the run and the talk of bringing back the defaulters from 25 countries with whom Pakistan has an extradition treaty there is a new hope and optimism about the economic recovery which would benefit common man. The statement by the finance minister, Shaukat Aziz, that imprudent bankers will have to pay for their misdeeds has been widely welcomed.

The Deputy Governor of the State Bank of Pakistan, the central bank, has said that Rs 72 billion was owed by just 325 defaulters each of whom owe Rs 100 million and above. Can such huge loans be issued with the collision of the top ranking bank officials? Obviously not.

A high placed official at one of the nationalised banks informed PAGE that the bank is preparing a list of officers who were instrumental in the issuance of the politically motivated loans.

The State Bank of Pakistan has also asked the banks to furnish details of defaulters who owe Rs 100 million and above by November 23. It has also asked them to provide details about any waivers and concessions made by the banks in the principal amount or markup at the time of their rescheduling.

Instilling the fear and keeping the defaulters on their toes to either pay up the loans or face the music is expected to recover the non-performing loans to improve the performance of the banks and non-banking financial institutions. It will also bring the lost credibility to the banking industry in Pakistan.

The loan recovery drive has not ended with the end of November 16 deadline but it has rather picked up the pace to recover the loot which were deposited in the banking system as a trust by the people.

National Accountability Bureau (NAB)

The provisions of the new accountability law is vastly improved to include the Armed Forces, is aimed at effective and expeditious process and makes wilful default of not only bank loans but also taxes and utility bills an offence punishable by the law. Unlike its predecessors— the Ehtesab Ordinance by Farooq Leghari’s caretaker regime in 1996 and the so-called Ehtesab [Accountability] Act by the deposed Nawaz Sharif government— it is much better defined.

Titled the ‘National Accountability Bureau Ordinance (No.XVIII of 1999) came in force at once and shall be deemed to have come into force from the 1st day of January 1985. For the first time, the new ordinance includes ‘any person who has served in and retired or resigned or dismissed from the Armed Forces of Pakistan.’

The new ordinance creates a new offence of ‘wilful default’ in repayment of bank loans or payment of taxes and utility charges and makes it punishable with ten years’ jail term and other penalties. It also defines ‘corruption and corrupt practices such as issuance of ‘any directive, policy, or SRO (statutory regulatory order) or any other order which grants or enables any concession or benefit in any taxation matter or otherwise so as to benefit himself (the accused) or any relative or associate or a benamidar [un-named].


The stern action initiated by the government which resulted in the arrest of the influential persons who have never been touched by the arm of the law before has send a strong signal to the unscrupulous elements in all sectors of the economy that corruption and mismanagement will not be tolerated anymore. It has reiterated the government’s promise of good governance and an overall improved economy which brings in, and not leaves out, a common man.

With the abundance of human resources and a work force which is second to none, November 16 and the stern action which followed would go a long way to bring confidence in the investment climate in Pakistan.The public outcry for strict accountability has finally been materialised. Many defaulters have been arrested, others are on the run while still more are on the list of the government for their extradition from the countries with which Pakistan has an extradition treaty. The rule of law has been established and an across the board accountability has begun from the top.

Though the cash recovery has been small much has been done to shatter the image that the rich corrupts could never been touched in Pakistan. The unprecedented stern action has invoked hope among those sceptics who thought that the status quo of the loot and plunder with complete impunity was there to continue at the expense of people of Pakistan, the majority of which are hard-working, intelligent and honest.

The years of rot would take time to clean but the sheer will and commitment demonstrated by the government to turn the table on influential defaulters, first major test, has proved to be an immense success. It has stirred hope that all is not lost and together we could clear the economic mess which have been left by the successive so-called ‘democratically elected’ governments in last decade in particular and their predecessors in general.

Finally there seems to be a silver lining amidst the all pervading darkness and gloom.

Loan Recovery By Major Commercial Banks and DFIs by November 16, 1999

(Amount in Rs)

Bank/DFI Non-Performing Portfolio Cash Recovery Loans Regularised

National Bank

23.5 B

915 million

5 Billion

Habib Bank

41 B

1.629 B

5 B

United Bank


850 million*

1.3 B

Muslim Commercial

9 B

1 B

2 B

Allied Bank

10 B 800 million




1.58 B




332 million

7.7 B

* Cash Rs 800 million, Collateral, properties, post dated cheques Rs 50 million

@ Agriculture Development Bank of Pakistan

+ Industrial Development Bank

Presidential Ordinance

S.No. Offences Punishment Remarks

1. Corruption and Corrupt 14 years or

Practies. less along

with fine

a. Wilful default in repayment 14 years or As defined

of outstanding dues to a Bank less plus fine in the

or a Financial Institution Sections

shall be an offence or deemed of the

to be an offence or corruption Order read

and / or corrupt practices. with Anti-

Corruption Act.

b. Any person who aids, abets or 14 years or

through any wilful act or less plus fine

omission is instrumental in amounting to

the commission of the offence the loss incurred.

specified at Serial 1(a)above

of this Schedule or with

wrongful intent for illegal

gratification by misuse of power,

authority, influence, nepotism,

favouritism writes off, waives,

restructures or refinances

illegally, improperly or without

sufficient justification the

principal amount of loan on any

financial facility, interest or

mark-up on any loan or financial

facility provided to any person

by any bank or financial institution shall have

committed or be deemed to have committed the offence

of corruption and/or corrupt practices.

2. Criminal conspiracy/attempt 10 years or

to commit any scheduled offence. less

3. Knowingly furnishes false 10 years or To be

information to any member of less read with

the National Accountability Sections

Bureau or to any agency 175-177 PPC

investigating any alleged offence.

4. Refuses to answer questions, or to 5 year To read

provide information to the National or less with Sec-

Accountability Bureau or any other tions 180-

agency when required to do so. 182 PPC

5. Giving or fabricating false evidence To be read

during inquiry, investigation of an with

offence by the National Accountability following

Bureau or any agency: sections

of PPC:-

193, 195,


199, 200,

201, 202

203, 204,


* When given by a complainant/ 5years

witness/accused. or less

* When given by any inquiry 10 years

officer, investigator of the or less

National Accountability

Bureau or concerned agency.

6. Embezzlement 14 years

or less

7. Misuse of authority/power in 14 years

committing any offence above, or less

by any person holding a public office.

8. Fraud 14 years or less

9. Acquisition, retention and possession 14 years

of assets derived from corrupt less along-

practices by corrupt or/and illegal with fine and

means in abuse of power and/or confiscation

authority. of property.


Muhammad Rafiq Tarar

President of the Islamic Republic of Pakistan