We have recently been reading in newspapers that the Committee for Revival of Sick Industrial Units (CRSIU), is doing a commendable job, apparently for reviving the sick industrial units.
However, an in-depth study of some of the cases, decided by the Committee showed that the CRSIU simply acts as a recovery committee and its sole purpose is to recover defaulted loans. The decisions are taken primarily to safeguard the interests of the banks rather than to rehabilitate the sick industrial units.
The decisions are generally based on summaries prepared by bankers in their own interest and discussed by them in their meetings and decisions taken thereon but the view-points of industrialists are seldom taken into consideration, as they are seldom called upon to attend such meetings.
It, indeed, requires lot of time and patience to find out the causes of sickness of an industry which can range from inconsistent official policies to different tax structures, to unbridled laissez-faire allowing setting up new industries leading to depreciation of the rupee. The committee has no time to study all these factors and even otherwise there exists no such study forum. Bankers are, therefore, the judges to summarily determine the causes of sickness of industries and are simply interested in their pound of flesh.
Consequently, when a company is declared as defaulter, banks hasten to send its name to the CIB, a double-edged sword against a running industry. The doors of banks are, thus, closed to it. All industries, as we know, need imported inputs in one form or the other. In the presence of an embargo by way of CIB, the defaulter industry cannot open letters of credit from any bank, what to speak of obtaining even meagre cash finance facilities.
When an industry becomes sick, it is surrounded by multifarious problems and beset with financial crisis. It cannot service its debt and cannot pay its liabilities. Business activities go down to the lowest ebb and share-holders do not get dividends or receive any other benefits. But ironically, bank-interest or mark-up starts multiplying. It is mostly banks, which, benefit from a sick industry. All other business partners and shareholders, suppliers, vendors, customs and sales tax authorities are, inter alia, the main losers. The employees also suffer, as they do not get their salaries and are denied with any bonuses or profit participation funds in a sick industry and eventually the employer is constrained to terminate their services.
These points should be given due thought by the members of the Committee in the larger interest of the revival of the economy. After all, in quite a many cases, industries had been set up by some of very honest, industrious, dedicated and unscrupulous industrialists in the days when there was not even a match factory in the country.
It may be added that the government, while constituting CRSIU, in its terms of reference, under Notification No. F-6 (13) BKG (R & B)/ 2000 - 230 dated 3-5-2000, laid down a number of basic guidelines in this context.
One wonders if the members, who are mostly senior bankers do make in-depth study of sick units in the light of the guidelines, and see that such units are made viable financially and revived in the larger interest of the economy.
On the contrary, it has been observed in very many cases that the Committee first tried to sell the assets of the sick units and if that was not feasible, got the suits for recovery with highly inflated claims and sale of the mortgaged/charged properties, filed in the Banking Courts and/or High Courts as Banking Courts against the sick units and their directors. They manage to obtain such orders from the courts resulting into the premature closure of the operations of the plants of such units, rendering the employees jobless and depriving the government exchequer millions of rupees by way of customs duty, sales tax and other taxes and charges. And strangely enough, all these actions, contrary to the banking practice and ethics, are taken, particularly by those banks, where there have been cases of fraud and embezzlement.
It may, however, be pointed out that even if the loans of sick units, somehow or other, are rescheduled, the problems of the such units are not over. Notwithstanding the issuance of the requisite approvals from all the concerned, lending banks listing the terms and conditions of the restructuring/rescheduling package, including the rescheduled amount, modes of payments, creation of charges of movable and immovable assets and the consequences in the event of defaults in payment of instalments on due dates and/or within grace periods, the lending banks use various tactics and put all sorts of pressure on such units to sign totally different agreements in respect of the settlement of liabilities between the banks and the sick units without referring to and making part and parcel of the agreed rescheduled and restructured packages and further to give their consent therein for the entire suit amounts to be decreed, as prayed in the plaints with additional arbitrary and coercive terms and conditions.
It would not be out of place to mention here that the figures quoted and the amounts claimed in the suits by the banks with regard to the stuck up loans are highly exaggerated, in most of the cases. And the lending banks despite the Committee having agreed to settle such stuck up loans and having obtained adequate securities of movable and immovable properties, unreasonably insist to obtain the decrees for the full suit amounts with all the possible draconian terms and conditions against the sick units without realising that these steps will lead to the closure of such sick units instead of reviving them.
With such callous attitude of banks, the sick units will, I am constrained to say, never be able to revive and stand on their feet.
The lending banks, therefore, cannot have the best of the both worlds. The banks may either reschedule and restructure the liabilities of the sick industrial units or directly settle the matters in courts pertaining to their claims in the suits on merits and in accordance with law, practice and precedents. Once the liabilities of a sick unit are restructured and rescheduled and the requisite letters containing all the terms and conditions thereof are issued and accepted by it, the same becomes a binding agreement between the parties within the meaning of the Contract Act, the Bank should not therefore, make any illogical and illegal demands and create problems, financial or otherwise, for the sick units.
It is rather unfortunate both for the country and its economy that the cases regarding revival of sick industrial units are not being dealt with by our bankers with sincerity, efficiency and priority, as deserved and required. A former Governor of State Bank of Pakistan (SBP) is on record of having rightly said that our banking sector is inefficient and corrupt. Despite such observation of the Governor of the SBP, no punitive action or corrective measures have been effectively taken by the central bank for one reason or the other.
I am, therefore, of the firm view that with a view to clear the Augean stable of the banking sector, a list of such officers and executives of all the major banks, which are under the administration and control of the government and/or the SBP, which have shown symptoms of financial sickness, serious irregularities, mal-practices and illegalities, done or committed by them in the course of banking transactions and dealings, be prepared on the lines of the bank loan defaulters. After a thorough scrutiny and examination and giving them adequate opportunities in their defence, prompt and proper actions under the law should be taken against them. The guiding principle should, however, be that those officials who have committed such serious irregularities or offences should not be allowed to remain in the service of the banks and in fact, should also be permanently debarred from entering in the banking sector in any capacity, whatsoever, as has been recently done by a four member standing committee of the SBP headed by a deputy governor in the cases of the former chairman/chief executive and three other directors of the Allied Bank of Pakistan Limited.
It is only such drastic and impartial action and enforcement of the concept of accountability at all levels that the confidence of the general public will be restored in such banks and when justice will be done with the sick industrial units for their revival.