Polls: bank role in detecting defaulters
AFTER Dr Tahirul Qadri’s long march and sit-in, there is a debate that it is not possible for the Election Commission of Pakistan to declare anyone a defaulter in 30 days as the person can go to court and take a stay against it. Some people argue in favour of this, saying that there are many such cases between the banks and big and small companies and there are issues of major and minor shareholders.
I disagree with this argument. First, we need to clarify that it is not the court which judges whether a person has defaulted. The judgment is given by banks under Prudential Regulation 8 of the State Bank of Pakistan. The cases in courts are pending because of documentation issues and distribution of collateral among the banks and due to some other reasons.
However, it must be noted that banks started to maintain provisions/reserve against cases which are taken into the court long before that under the guidance of Prudential Regulation 8. By the time the case is presented in the court, usually it is 100 per cent provided by the bank.
Prudential Regulations (PR) are available on the website of SBP under publications, and PR 8 addresses the issue of classification of assets for the bank. It advises banks to make the classification of assets based on a quantitative basis, i.e., to classify the asset as substandard, doubtful or loss-based on the lapse of due payments based on a number of days (like if a payment is overdue for 90 days, then it will be classified as substandard and so on) and also on a qualitative basis.
This means banks can classify the asset as substandard, doubtful and loss, based on their perceptions, happening of any event or weak company performance.
In this case, it is not necessary for banks to wait for the lapse of days to classify assets. If this PR 8 is not adhered and it is observed by SBP auditors in their annual review, then banks have to pay heavy penalties and major deviations can result in licence cancellation also.
Please go through the revenue distribution of the SBP, you will come to know the income of the SBP due to penalties paid by the banks.
For each individual, proprietorship concern, private limited company or listed or unlisted company, availing credit facilities from any bank in Pakistan, the loan status is periodically updated to state banks by all banks and a database called Credit Investigation Bureau (CIB) maintained by the SBP.
Access of this database is available to all banks for uploading and downloading information. All the banks before providing the facilities to new customers, renewing existing facilities of customers or working on one-off credit facilities of existing customers are required to get an updated CIB report from the SBP. If any overdue like 90, 120 or 180 days is reported in the CIB report, then it is mandatory for the bank to take clearance report from all of their existing banks that there is no overdue or it is settled and account stands regularised.
For a bank, it is very important to lend in accordance with the seven Cs of capital, in which the first C stands for character, i.e., there is no existing default and the history is clean. The bank can do this in 10 minutes.
I am surprised to read the comments that the ECP cannot identify whether the contestants of elections are defaulters within 30 days. What the ECP needs is the CIB access and registration numbers of the companies, with IDs of all the owners of the company and the ID of contestant and it will not take more than 10 minutes to check whether the person has any default or not.
If there is, then the ECP can give the contestant a week’s time to get an NOC from all banks or can contact directly all banks to get an NOC from them. So this whole process will not take more than seven working days.