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SC holds SBP responsible for waiving off loans

30 September, 2010

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ISLAMABAD: The Supreme Court on Wednesday observed that the State Bank of Pakistan (SBP) was mainly responsible for waiving billions of rupee bank loans on the wishes of influential figures of the country, causing a huge loss to the national exchequer.

A three-member bench of the apex court, comprising Chief Justice Iftikhar Muhammad Chaudhry, Justice Tariq Pervez and Justice Ghulam Rabbani, was hearing a suo motu case of Rs 54 billion written-off loans.

“Prima facie responsibility lies at the shoulders of the State Bank of Pakistan as according to Circular 13, no loan could be waived without the approval of the State Bank of Pakistan,” the chief justice remarked.

The court directed the State Bank to submit by October 20 details of at least 10 cases from each year, which met two conditions set in Section 33B of the Banking Companies Ordinance and which were prerequisites for writing off loans.

“We are only interested that the wealth of this country should come to this nation,” the CJP observed, asking the SBP counsel to submit details of at least 10 cases wherein violation regarding writing off loans had been made. The court observed that it would look into the State Bank Circular 29 on writing off loans in view of the Article 25 of the Constitution.

Syed Iqbal Haider, counsel for the State Bank of Pakistan, Abdul Hafeez Pirzada, amicus curie, and Salman Akram Raja, counsel for private banks, appeared before the court.

Syed Iqbal Haider argued that the State Bank does not write off loans or gives any directions to banks to waive loans but issues guidelines to do so. He contended that the Establishment had promoted the culture of defaulters. “What you mean by Establishment, you mean bureaucracy?” the CJP enquired.

“No the elites of this country,” Iqbal Haider replied, adding that in electoral laws, members of parliament were not permitted if they were bank defaulters. He further contended that it was the responsibility of the Finance Department to make laws pertaining to the subject.

Iqbal Haider repeatedly requested the court to order constitution of a commission to probe the matter; however, the court rejected his request and asked him to provide the details of 10 cases.

The chief justice observed that the economy of this country was looted by writing off loans. “The wealth of this country should come to this nation and it’s our main objective,” the CJP observed this both in Urdu and Pashto languages.

The chief justice said that if the money stashed in foreign countries could be brought back to Pakistan, the court was ready to give relief. “Those who bring the looted money back to the country will not be held accountable.”

He said if the bank requests the court, we will issue orders regarding recovery of the loans. The officials who sanctioned loans on a poor guarantee should also be held accountable. “What could be the rationale behind sanctioning loans on insufficient guarantees. If a poor gets Rs 20,000 loans, bank officials never spare him. It’s a game of influential persons, while the poor is made the victim.”

Justice Tariq Pervez asked the learned counsel as to whether the SBP had taken any action against the bank defaulters for violation of prudential requirements.

“You have not only extended facilities of writing off loans to individuals but also caused severe debt loss to the Federal Board of Revenue,” the CJP remarked, adding that this was the game of influential persons while the SBP used to do whatever it wanted.

The court observed that the private banks should also follow those rules and regulations, applicable on the financial institutions in the public sector. Salman Akram Raja, counsel for private banks, informed the court that 80 percent loans were waived of the total amount after 1999 and onward.

The court in its order observed: “We are of the opinion that circular No 2, not 29, on basis of which huge amount of loans extended to borrowers has been written off is contrary to the Section 3 B of Bank Ordinance 1962.

“Interestingly, this section is not authority on SBP to allow facilities of writing off loans,” said the order, adding that elements of this discrimination in terms of Article 25 of the Constitution are also identifiable.

The court further ruled that the case was before the court for two years, however, no borrower had come forward claiming that he got written off loans, the only reason was that they had secured their interest and now managing their business. The court adjourned the hearing till October 20.


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