KARACHI, May 9: National Bank has agreed to provide substantial monetary support to the sinking Crescent Standard Investment Bank Limited (CSIBL) and all the lenders of the bank have been asked not to withdraw their stakes in the bank, banking sources told Dawn on Tuesday.

A meeting of the CSIBL lenders, also participated by National Bank President Ali Raza and head of the Crescent group, held here on Tuesday. The meeting was held to help the bank that is involved in serious violations of investment of banking rules and maintaining parallel books of accounts.

The sources said the Crescent group had succeeded in getting help from Islamabad to involve National Bank to rescue the bank from sinking.

The State Bank has been following a policy of favouring large banks and wants merger of small banks with others in the wake of higher risk involved with small banks. This was the reason the SBP has increased the paid-up capital of a bank from Rs1 billion to Rs2 billion and then to Rs3 billion till December 31, 2006. The paid-up capital would be Rs5 billion after two years under a policy that provides only two options to small banks: either increase growth or merge with other banks.

The sources said the Crescent group had sought Rs2 billion to save the bank. National Bank, in principal, has agreed to help the bank and said the case of monetary help for CSIBL was under process.

According to the sources, the Crescent group had assured that with the financial assistance it could restructure CSIBL within five six months. The group has also provided details about the strategy it planned for strengthening the CSIBL balance sheet. For this purpose, the group has decided to merge two or three companies which will bring liquidity for the bank.

The sources said National Bank had advised all the stakeholders and lenders of CSIBL not to withdraw money from the bank. “The withdrawal has already damaged its reputation and financial viability.”

It was also felt that the saving of the bank should be taken as a help for the whole banking industry and its image in the public and market.

However, the question remains there: will NBP help other small banks that are struggling to meet the rising paid-up capital requirement of the State Bank?

This is not the case of only shortage of cash. CSIBL was served a notice by the Securities and Exchange Commission of Pakistan for maintaining parallel books for balance sheet. It was also found involved in serious violations of investing in a housing project. Although CSIBL has no housing licence, it extended financing for the Creek Marina project. The SECP also took the notice of this investment.

Another violation was that the bank had created a subsidiary, Maghrib Developers, and directly poured about Rs2.6 billion into its account. The bank was not allowed to inject cash into its own subsidiary.

CSIBL chief executive Mahmood Ahmed resigned but no one was placed on his post. Efforts are being made to clean up the bank from what it did by violating the banking laws.