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
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 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
Executives 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
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
The government owned Pakistan Television Corporation did not mention
any arrests on Friday, November 19.
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 Legharis
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
governments 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
(Amount in Rs)
Bank/DFI Non-Performing Portfolio Cash Recovery Loans
10 B 800 million
* Cash Rs 800 million, Collateral, properties, post
dated cheques Rs 50 million
@ Agriculture Development Bank of Pakistan
+ Industrial Development Bank
S.No. Offences Punishment Remarks
1. Corruption and Corrupt 14 years or
Practies. less along
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-
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
* When given by a complainant/ 5years
witness/accused. or less
* When given by any inquiry 10 years
officer, investigator of the or less
Bureau or concerned agency.
6. Embezzlement 14 years
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