It may be mentioned that on page 93 of the SBP annual report for the fiscal year 1999-2000, the stock of the NPLs as on the 30th June, 1999 was put at Rs 212.1 billion, 20 per cent whereof slightly exceeds Rs40 billion.

It was also mentioned in the said article that as compared to earlier ratio of the loans going bad which had been about 25 per cent, it had since come down to five per cent viz-a-viz the loans disbursed after 1997- which he "termed much lower than the international norms".

Contrary to the NAB's claim of the cash recovery of NPLs of Rs90 billion, the said article put it at Rs17.5 billion including the rescheduling; the break-up of the above amount in terms of cash recovery/rescheduling was, however, not mentioned. The former SBP Governor, Dr Muhammad Yaqub, had conducted a special study on the banking sector in Pakistan which was published in an English daily of Karachi in 25 episodes in April-May, 2003.

In the 15th episode, the data about cash recoveries of NPLs was given. All the data given in Dr Yaqub's study was provided by the SBP. The cash recovery during the last 3 quarters of 1999-2000 (since the present economic managers took over in the second quarter of that fiscal year), and 2000-2001/2001-2002 aggregated Rs37.121 billion.

(We have taken figures up to the fiscal year 2001-2002 only, because the figures given in the article mentioned in the preceding paragraph may also be pertaining to the period upto the June,2002.

The figures given in Dr. Yaqub's study almost match with those contained in the above article; the difference of rupees three billion may be due to the fact that Dr. Yaqub had used the figures of recovery of the loans of Rs one million and above.

In the address delivered by the SBP Governor at the Institute of Bankers on the 26th July,2003 the amount of cash recoveries of the NPLs was put at Rs 124 billion. In the said address, the Governor mentioned that the amount of cash recoveries through the assistance of NAB was Rs86.6 billion.

It was also mentioned in the said address that the ratio of the loans (disbursed since 1997) going bad had been reduced to less than five per cent (which was termed "close to the international norms") in contrast to 25 per cent ratio for the period before 1997.

The data provided in the address must be relating to the period upto the 31st March, 03- the latest as the figures as of the end-June, 03 would not be available in July, 03. The SBP has commenced posting on its website the figures of cash recoveries of the NPLs with effect from October-December,2003 quarter. The amount of the cash recoveries gathered from the SBP website for the period from October 2003 to June,2004 aggregate Rs21.059 billion.

If we add Rs14 billion recoveries (on the average) for the quarters April-June,2003 and July-September, 03, the cash recoveries during April 2003-June,2004 would work out to Rs35 billion which when added to the figure of Rs 124 billion, the aggregate would be Rs159 billion.

Judging the claims: It is a puzzle why do the NPLs fail to register a sizable decline despite such heavy cash recoveries. In order to examine the issue in depth, we have commenced the study from June,1997 when the SBP had gained autonomy and its then Governor had announced concessions for repayments by the defaulters.

To refresh the readers, the policy envisaged waiver of 95 per cent interest amount where the loans were in default for 7 years or more, waiver of 80 per cent interest amount where the loans were in default for more than 3 years but less than 7 years and waiver of 25 per cent interest amount where the default was for less than three years.

At the time of announcing the policy, the then Governor, SBP, pointed out that the defaulted loans rose from Rs83 billion to Rs123 billion during 1993-96 period and stood at Rs127 billion in June 1997 out of which Rs105 billion was payable to the commercial banks and Rs22 billion to the DFIs.

Further, out of Rs127 billion, Rs52.3 billion were owed by 3206 sick industrial units while another Rs3.8 billion was due from the industrial units which were then passing through the process of liquidation.

The methodology adopted for studying the issue is to work out what would have been the quantum of NPLs as at the 30th June, 04 had there been no recovery of a single rupee from the NPLs.

To this end, we have taken June,1997 figures of the NPLs, added interest thereon at the lending rates for loans meant for machinery procurement as published in the SBP annual reports and deduced therefrom the amounts of the principal and interest written-off by the banks which data was picked up from the relative annual reports of the concerned banks.

As over 82 per cent of the defaulted loans were owed to the five major Pakistani banks, we have kept the study confined to these banks only. The detailed calculations are given in Tables 2 and 3. The figures given in the Table II are as of the 31st December, 2003. To make the same comparable to the SBP figures as of the 30th June, 04 (Table I), six months' interest viz Rs7.12 billion has been added where after the figure aggregates Rs244.31 billion.

The picture will still be incomplete as it does not account for the amounts of advances disbursed between July, 1997 and June,2004 which turned bad and the interest accruing thereon. The requisite working has been done in the appended Table 4.

The addition of Rs55.692 billion to Rs244.31 billion will give the figure of Rs300.002 billion which would have been the (estimated) quantum of the NPLs as on the 30th June, 04 had there been no cash recovery However, as calculated in Table I, the actual NPLs, as per the SBP website, stand at Rs245.268 billion, the cash recoveries during the reign of the present economic managers work out to Rs54.734 billion (Rs 300.002 billion - Rs245.268 billion as per Table I).

There would naturally be some difference between the actual NPLs and those estimated in Tables I to IV on account of interest rate application, and the write-offs by the DFIs which data could not become available to this scribe. If we keep a margin of, say Rs 10 billion for these two factors and give the benefit to the SBP data, the cash recoveries will be around Rs64 billion only.

The figures contained in Tables I to IV are fairly accurate as can be judged from the fact that in the SBP Governor's address at the IBP, the loan write-offs during 1999 to 02 was put at Rs23.5 billion while in Table II, this amount works out to Rs20.80 billion. The difference of Rs2.7 billion may be representing write-offs by the DFIs which data is not available.

Conclusion: There is a wide gap of about Rs 95-105 billion or so between the (estimated) figures of cash recoveries and those claimed by the SBP. This may be mainly because the banks/DFIs may have been providing to the SBP inaccurate data about the cash recoveries and NPLs.