ALTHOUGH bank defaulters have not exactly rushed to repay their loans, there has been a small trickle of cash that has made its way back to the financial institutions that had handed it out with such generosity.

But even if all 240 billion rupees in non-performing loans are returned by the sharks who have pocketed much of this loot, it is doubtful that our economic woes will be reduced. Most Pakistanis feel - and I include here the intelligentsia - that once the defaulted billions are returned, rivers of milk and honey will start flowing across the parched Land of the Pure. Looking for a quick fix, most of us have neither the patience nor the stamina to accept that progress takes sustained effort and consistency. We are convinced that had the crooks who masquerade as businessmen not plundered the banking system, we would not be in our current precarious situation.

Very few of us have stopped to consider what will happen if and when the bulk of the defaulted loans is returned. As it is, Pakistani banks are not short of liquidity. The recent schemes launched to attract deposits have been very successful as people looked for opportunities to park their savings in an environment where the stock market continues its erratic behaviour and the real estate market has virtually collapsed.

But despite ample liquidity, very few businessmen are applying for loans. Partly this is because of the prevailing recessionary conditions when no new investments are being made. Indeed, the last three years have witnessed only three new listed companies being added to the stock exchange. Then there are the crushingly high interest rates that continue to stifle investment despite the presence of sufficient liquidity. Although the State Bank cut prime rate slightly earlier this year, an entrepreneur still has to pay interest at the rate of around 18% annually. If he goes to a leasing company, the rate can be around 20-22%. Add to this a normal profit margin of at least 12%, and we are talking about an annual return of about 33%. Very few investments earn this kind of profit, especially in an economy as depressed as Pakistan's.

Pakistan's fiscal managers have traditionally kept interest rates high to keep prices low, but this anti-inflationary monetary policy has been at the cost of growth and investments. When the economy was doing well, industrialists borrowed to expand capacity and build new plants, often reducing personal risk by over-invoicing massively on imported machinery. But when the textile boom went bust in he early nineties and political uncertainty began stifling growth, many mills shut down and industrial moguls were unable to service the loans they had acquired at very high interest rates. This is not to suggest that their indebtedness affected their lifestyle in any way: their offspring still went abroad to study; they summered in Europe and maintained their flats in London; and they partied as hard as ever.

While the present government is trying to crack down on the worst of these defaulters, they haven't yet turned their attention to the bankers who dished out these unsecured loans as though they were from their personal coffers. The most illustrious of the tribe. Younus Habib, was imprisoned for ten years by the Benazir Bhutto government, but was granted several remissions during Nawaz Sharif's last tenure, and is now out of jail.

The fact is that loans simply cannot be granted without the active connivance of a number of bankers. The whole process of evaluating a proposal is a lengthy one in which a number of people are involved. Unfortunately, those manning the development financial institutions (DFIs) and the nationalized banks have served as personal bankers to politicians and their sycophants ever since these organizations were brought under government control in the early seventies by Bhutto. The only qualifications needed to head these institutions were a compliant nature and an easy conscience. Pakistan is fortunate in having more than its fair share of such men.

As the balance sheets of these banks became awash in red ink, the return they offered on savings became embarrassing even to them. Currently, most nationalized banks give around 8% on savings accounts, out of which the government takes another bite in the shape of zakat. Considering that the same banks lend money at around 18%, this gives them a spread of 10%, a figure unheard of in respectable banking circles. Nevertheless, their profits are virtually non-existent because of their huge overheads and their bulging portfolios of non-performing loans which, instead of being written off, are shown as "receivables." This accounting sleight of hand allows them to show paper profits where none exist.

In the process, it is the average account holder who gets shafted. When all this talk of accountability reverberates across the land, nobody says "let's get the bloody bankers." Many of these worthies have enriched themselves by granting loans which a private bank would not touch with a barge pole. They have colluded with businessmen who have happily given them bribes in the shape of cash or share in their companies. While these bankers have usually cited political interference as an excuse, the fact is that the majority of bad loans were sanctioned entirely by misusing their authority for personal gain or professional advancement.

The State Bank of Pakistan which is enjoined and empowered to oversee the working of nationalized and private banks,did little to stop this plunder. Not once in public knowledge has it stepped in to protect the interests of the state or individual account holders. As far as I know, it has never held top bankers accountable for their miserable performance, demanding to know why they were giving such low returns to savers when private banks, usually foreign, were doing so much better.

Ever since privatization became the official mantra a decade ago, we have been hearing that nationalized banks will be returned to the private sector. Apart from MCB, we are still waiting for the country's two biggest banks, Habib and United, to be sold. The problem is that their executives, the bureaucracy and politicians all want their cash cows to be tethered where they can be milked at will.