ISLAMABAD July 25: The public sector banks and Development Financial Institutions (DFIs) set up to help promote small farmers and industry are faced with fraud, bad loans and staff politics, thus losing its viability.

This was the assessment of the Ad-hoc Public Accounts Committee (PAC) during its review of the audit reports of Industrial Development Bank of Pakistan (IDBP) and the Agricultural Development Bank of Pakistan (ADBP) with Mr H U Baig in the chair on Thursday.

The PAC was told that the FIA’s banking circle was investigating a total of 600 bank frauds and bad loans amounting to Rs8 billion, allegedly by doling out loans to favourites, which were neither repaid nor was there any hope of recovery.

The FIA official defined bad loans as embezzled amounts misappropriated by the borrowers through the collusion of bank staff and DFIs.

The PAC directed the secretary finance as Principal Accounting Officer (PAO) to constitute a committee of experts to prepare guidelines and foolproof mechanism for loan sanctioning by financial institutions.

Earlier, the PAC was told that the ADBP had lost Rs194.854 million following failure of a project and non-recovery of loan. The committee observed that it was bad investment decision.

According to details, the ADBP paid Rs70.888 million to a party in 1988 for setting up of fruit juice plant, which swelled to Rs194.854 million in 1995 despite numerous rescheduling and freezing of interest.

The debtor neither installed the plant nor repaid any loan instalment and later the project was closed and ceased to operate.

The committee noted that the feasibility of the project in this particular case was not examined and credit worthiness of the applicant was never checked. The amount was thus extended to a project, which was not profitable or economically viable business venture.

The PAC observed that the cost in this case could not be ignored and asked the PAO to hold a fresh inquiry in order to fix responsibility and furnish the report to the committee within 30 days.

Director General Audit in his briefing to the committee said the IDBP had suffered a loss of Rs12.238 million in a loan grant to Usman Haroon for setting up a poultry feed manufacturing unit at Sukkur.

According to the bank’s engineering inspection report, the requisite machinery was installed and trial operations were also carried out. But the investigation report prepared by the bank in October 1992 showed that machinery was not installed and no work had been carried out.