KARACHI, Jan 19: The government is considering establishment of a Resolution Trust Corporation (RTC) to bail out industrial companies, mainly textile ones, from accumulated loans and interests by offering financial packages that could make bank credit payment viable providing some public sector equity participation and keep the concern running.

Prime Minister’s Adviser on Finance Shaukat Tarin is said to have floated the idea of formation of a RTC on lines of institutions set up in US and Europe, where government is intervening in a big way to bail out mighty industrial and business corporations groaning under huge loan liabilities.

Tarin is said to have made a casual reference about RTC in his meeting with a three-member team of All Pakistan Textile Mills Association (Aptma) last week in Islamabad.

However, the government’s adviser on finance did not elaborate much on the structure of the proposed RTC and how seed-money — about Rs100 billion — will be lined up. But there are indications that Prudential Regulations may be relaxed considerably for the benefit of banks.

Under existing prudential rules banks are supposed to make provisions from their resources in the balance sheets for all loans that are not serviced after 90 days. The banks complain that their profits will be altogether eroded if they were asked to set aside resources for loans that are not serviced for 90 days.

Tarin is said to have promised to discuss this issue with the State Bank of Pakistan (SBP) and with the banks. The newly-appointed Governor SBP Salim Reza is meeting Pakistan Banks Association on Tuesday and there is a possibility of the issue coming under discussion.

In case the government moves ahead in direction of setting in place an RTC to bail out textile mills from financial crisis, analysts in the market say it will be for the fifth time in last 25 years that the tycoons will be given an opportunity to get rid of their liabilities at the cost of savers’ money in banks.

In mid-80s the Junejo government set up Baig Committee to provide relief to the textile sector. More than Rs5 billion loans were written off from textile mills. Late Dr Mahubul Haq in his budget speech in June 1988 had accused Junejo government of helping super rich textile mill owners from the money of poor savers of banks.

In 1991, Nawaz Sharif set up a committee to prepare a report on sick industrial units. The committee was headed by a businessman, who was reputed to be sponsor of the biggest number of sick industrial units. He now owns and manages an automobile assembling plant, which is now in problems.

In 1993 a committee of Senators headed by Sartaj Aziz prepared a report that found Pakistan’s textile sector to be most pampered, which was provided cotton at half the world price for more than 50 years.

In 1998 Nawaz Sharif formed another committee to provide relief to textile sector. Shaukat Aziz as finance minister and then the prime minister could not ignore textile sector. A separate textile ministry was set up for the first time in 2005.

The State Bank issued a circular to provide restructuring of loans on textile mills. Under the original circular, the sponsors and owners, who were to be found responsible of mismanagement, were to be pushed out of the company and relief was to be given to new owners/managers, who would give a commitment to improve the financial health of the company.

But the powerful textile lobby managed to amend the circular and was successful in providing a room for existing owners, who were proven bad managers and operators. The end result is the present crisis and the richest people are again out with begging bowls.

“Times have changed’’ argued a local textile mill owner, who said in last 25 years a whole new set of bright, western educated young professional class of managers have come up, who are ready to cope with the emerging challenges.

The industry, including textiles, he pointed out is under terrible stress partly because of international factors and partly because of the government policies. The industry is paying almost 80 per cent of the country’s revenue with a high utility tariff and phenomenally high interest rate. There is a case for industry in general and textile in particular to get some relief and respite.

The only caution the government should take is to ensure that old sharks in business be kept at a distance from all this operation and whosoever is asked to take up responsibility of running textile unit is watched and monitored regularly.

“Mind it, it is public money in banks saved by millions, who have worked hard, he said. For decades, the poor savers in Pakistan have been denied due return on their savings. If these savings could activate sick and idle industry, it will be best return for them.