KARACHI, Jan 18: The State Bank of Pakistan has instructed all the banks to follow recommendations of the Committee for Revival of Sick Industrial Units for financial relief of the cases that come up for review before it.

These instructions came from the central bank after several complaints that banks were reluctant to give financial relief recommended by the Committee for Revival of Sick Industrial Units. The committee normally reschedules and restructures the outstanding loans, staggers the repayment period and offers waivers and write-offs on accumulated mark-ups if it was considered necessary.

The committee is headed by Tariq Hameed, now also the Finance Minister of Punjab, and includes presidents of three nationalized commercial banks, chief executives of Pakistan Industrial Credit and Investment Corporation, Industrial Development Bank of Pakistan and Agricultural Development Bank of Pakistan, besides a few representatives drawn from the private sector.

Cases for the review of the committee are prepared and presented by the financing banks, which offer history of the project, identify the causes of sickness and make proposals for the financial relief.

The committee also invites sponsors of the sick units for consultation whenever it is felt necessary before making recommendations. Bankers say that they get difficulty in getting relief in cases where finances have been obtained from more than one financial institutions.

Bankers have reservations on write-offs and offering waivers after reports that the National Accountability Bureau (NAB) has questioned many bankers on the similar reliefs given in the past to many defaulters and owners of sick units.

Another major decision taken by the central bank is to allow the committee to scale down the sale value of the sick unit determined by the valuators if the owner or owners of the company agree to pay in lump sum agreed amount of restructured loan.

The committee has so far taken up 264 cases of sick units out of which it has offered financial relief to 119 units, which were found revival worthy.

Total outstanding loans against 119 approved cases amounted to Rs34 billion. This included Rs16 billion loan default. Default means that the loan has not been serviced for more than a year.

The units, for which the committee has recommended financial relief, included 27 spinning, 11 weaving, five knitting, three other textiles, 12 sugar and 61 other sectors.

The committee has rejected 145 cases. These had total outstanding loans of Rs32 billion and a default of Rs19 billion. Bulk of their outstanding loans was in default and quite a large number of these units are closed.

Bankers say that many of these sponsors were offered financial relief more than once in the past and none showed any sign of coming back to life. In many cases, the machinery has been turned into junk. Valuable parts have been taken out and sold away and present value is much less.

For disposal of such cases, the government has constituted Corporation of Industrial Restructuring, which is headed by the finance minister. Javed Hameed has recently been appointed its chief executive. Tariq Hameed was the chief executive of this corporation till he became Punjab’s finance minister. This corporation has so far auctioned 24 units, mopping up Rs290 million.

But neither the committee nor the corporation has ever given an account of the actual cost incurred on offering financial relief or losses sustained in offering closed industrial units for auction.