June 13 - 19, 2011

After dillydallying for months, the State Bank of Pakistan (SBP) had to submit and issue, on Thursday last, a new circular in compliance with a Supreme Court order directing banks and financial institutions to provide a complete record of loans waived off since 1971 and identify persons responsible for disbursing loans.

Before issuing the circular, the central bank got its approval from the 3-member bench of the Apex Court headed by the Chief Justice Iftikhar Muhammad Chaudhry hearing a suo-moto case pertaining to loans of Rs256 billion waived by the banks from 1971 to 2009.

The SBP has directed all banks to immediately submit the complete record of all written-off, remitted, reserved and waived loans, advances of Rs2.5 million and above for the period from 1971 to 1991 and Rs25 million and above for the period of 1992 to date.

The record is to be submitted to the special commission constituted by the Supreme Court to determine whether the loans disbursed and waived had validity or were given for other reasons other than the law or bona fide business considerations.

The SBP has also directed all banks and financial institutions to ensure compliance of its instructions and further directed them to provide any and all assistance and cooperation in the work of the special commission as well as comply with all of its general and special instructions.

In its new circular, the SBP has noted that serious questions have arisen with regard to written-off, remitted, reversed and waived off loans, advances, and finances under BPD circular 29 of October 15, 2002 or otherwise from 1971 onward. The SBP considered these questions against the possibility that the written off, remitted, reserved and waived loans, advances and finances may have been allowed any validity or justification, or because of political reasons or consideration other than law and bona fide considerations, the SBP new circular reads.

The Supreme Court had to be very tough with the SBP to get it moved in the right direction. The counsel of the SBP had earlier taken the plea that it was only a regulatory authority and not the controlling authority and most of the banks involved in the private sector and giving of loans and their waiving is decided by their board of directors. According to SBP counsel, the banks did not need its permission to writ off loans. The Apex court was however of the view that as a regulatory authority it was the duty of the SBP to ensure that rules and regulation were being followed. The court made it clear more than once that it can go to any extent for the recovery of the looted public money by the big and influential. "We have to maintain rule of law in the country and have nothing to do with whosoever is so influential. The waived loans are public money and to returned to the national exchequer."

The loan writ-offs have cost the national exchequer huge amounts of money and have been a chief means of promoting corrupt practices of all kinds in the country. What is striking is the fact, as noted by the court, that only four of the beneficiaries on the list have come forward after their names on widely publicized lists. This indifference to the plight of the nation by some of its richest sons is in many ways quite terrifying. A country abandoned by its own people stands little chance of moving ahead in any decisive direction.

For the same reasons, as has indeed been noted during of the case, we need to put in place tougher measures to deal with the loaning process by the banks. It is an irony that while ordinary citizens who seek to build a house, or obtain a car, or meet other needs have to go through along and laborious process and then face immense pressure-or even threats-even if they are a few days in paying an installment while highly rich but politically influential people can get away with massive write-offs easily. According to a press report, during this period of 38 years during which loan of whopping amount of Rs256 billion were written off, 7000 thousands of five and ten marlas were auctioned because their owners had failed to clear their loans ranging between 20 to 30 thousand which they had borrowed from House Building Finance Corporation.

The findings of the commission to look into these matters will be interesting. They should also help in the vital process of setting up controls to prevent write offs in the future. The SBP will almost certainly need to tighten its control and ensure that banks follow a set of rules laid down to prevent mala-fide write-offs and benefit those who seek funding for all the wrong reasons. Through the years, many such cases have come forward, some like the Bank of Punjab which is also before the Supreme Court. The SC's vigilant suo-moto action in the loan write off case should help prevent other similar acts of crime and protect the interests of both the citizens and the state.