April 16, 2008	Wednesday	Rabi-us-Sani 9, 1429

ISLAMABAD, April 15: The Supreme Court on Tuesday modified its earlier decision and appointed Sharifuddin Pirzada and A.K. Dogar as amici curiae (friends of the court) in place of Abdul Hafeez Pirzada in a case about writing off of bank loans totalling Rs54 billion in 2002 owed by businesses run by some top-level politicians.

A three-member bench, comprising Justice Mohammad Nawaz Abbasi, Justice Ijazul Hassan and Justice Mian Hamid Farooq, had initiated suo motu action on a press report saying that the SBP had approved the scheme to quietly write off bad debts.

The court impleaded the Indus Valley Oil Extraction Company of Karachi as an aggrieved party when Mr Hafeez Pirzada told the court that he was the firm’s chairman and should not be appointed as the amicus curiae. The bench adjourned the case till May 7 and observed that it wanted to settle the issue through day-to-day hearings.

During the hearing, Syed Iqbal Haider represented the State Bank of Pakistan which at the last hearing had presented a report before the apex court stating that these commercial loans had been written off in October 2002 under a scheme to ‘clean up non-performing loans’ (bad debts) that had surpassed Rs231 billion.

In a 1,400-page reply, the SBP had justified that its 2002 guidelines devised under Section 33(b) of the Banking Companies Ordinance of 1962 was aimed at providing an opportunity to the borrowers to settle their outstanding liabilities on flexible terms and, wherever possible, help revive their businesses or sick units.

According to the report, the colossal level of non-performing loans had affected the financial health of banks and development finance institutions (DFIs), which in turn had affected their profitability and impeded their restructuring or privatisation.

Based on a secret report submitted to the National Assembly’s Public Accounts Committee, a news report had suggested that the scheme had favoured 50,427 people, including politicians, civilian and military business concerns and top businessmen of Karachi, Lahore and other cities.

The report had also named the then sitting chief ministers of two provinces as beneficiaries because loans owed by their families’ business concerns, like sugar and ghee mills, had also been waived. Even some foreign firms and multinational companies and a private bus service operating between Lahore and different cities of Punjab were extended this facility.

Soon after October 2002 elections, the then finance minister Shaukat Aziz and the SBP had approved the scheme after succumbing to pressure by some politicians belonging to the then ruling party.

Instead of launching an effective campaign for the recovery of bad loans, the SBP issued an incentive scheme to banks and DFIs in October 2002 for waiving the loans of organisations showing ‘loss’ for three years or more after dividing them in three categories. Category A included non-performing loans of up to Rs500,000, category B of loans ranging between Rs500,000 to Rs2.5 million and category C of loans of more than Rs2.5 million.

Politicians and the major business concerns exploited the third category to get loans of billions of rupees cancelled.

The report said the banks and DFIs had been asked to recover maximum possible amount to settle loans falling under categories B and C through forced sale of available assets. The purpose of the scheme was to clean the banks’ balance sheets.

As a result, the banks and DFIs settled over 50,427 cases.