KARACHI, March 16: The Industrial Development Bank of Pakistan (IDBP) has written off Rs3.417 billion non-performing loans (NPLs) of six companies against whom an outstanding liability as per the books of the bank was Rs4.159 billion, banking circles said. The IDBP will now recover an amount of Rs742.836 million only from these borrowers and the remaining liability aggregating to Rs3,417.052 million has been written off, sources said. Despite the fact that a senior member of the bank’s Board did not approve the settlement and gave negative observations in his memo to the Board of Directors but still the board recently passed a resolution for the settlement of NPLs of these companies.

The IDBP member observed that the borrowers were accommodated by the bank to set up their projects under suppliers credit scheme. With the exception of one company, all the remaining five are textile units and mostly are in operation. He further observed that textile sector is performing exceptionally well for quite sometime from now.

The memo also pointed out that the State Bank circular No29 does not restrict a bank to recover maximum possible amount of NPLs. And even then prudence also lies in the fact that a banker should always endeavour for maximum recovery of its loan portfolio.

The senior member of the IDBP’s board even stated that similar sentiments were conveyed by the SBP through letter No.BPD/PU-34/SBP-scheme/2004-654 dated 26.5.2004 stating that it looks logical to recover maximum possible amount under the SBP scheme to clear NPLs keeping in view the position of available securities.

The member also brought to the knowledge of the Board that in these cases the IDBP holds adequate securities while the amount against the determined under the scheme is nominal due to diminutive valuation, non-considering attached properties or stocks and financial soundness of directors and sponsors.

It is also interesting that the director’s memo also drew the attention of the IDBP’s board of directors towards personal guarantees of the sponsors of each of these units and stated: “they are well-known and resourceful people.” But even then the decision was taken to write off huge amount of the liability.

In his memo the senior director pointed out that in case of M/s Sandalbar Textile Mills the bank also holds corporate guarantee of M/s Ittefaq Group which is a reputable group having good means. He even suggested that the IDBP should try to enforce their guarantees.

In case of M/s Reshi Textile Mills, he said the court ordered for attachment of sponsors or directors properties located in Islamabad, which are highly valuable. The shares of the company amounting to Rs75 million were also obtained by the bank in pledge. Further, stocks of the company were misappropriated. Therefore, he demanded that write-off benefit should not be allowed without considering these aspects.

Regarding M/s Massive Attack, which is the only non-textile unit among the six, the IDBP’s senior director pointed out that the case was categorized as “loss” in the year 2001 and the minutes of the Resolution Committee indicate that settlement of the package was mutually agreed between the borrower and the bank. In this case, even the FSV determined by approved evaluator has not been recovered.

The senior director’s memo, which was made available to Dawn offices, further stated that in terms of SBP circular No29, before allowing write-off all liquid assets including pledge, is required to be realized and sale proceeds thereof appropriated towards reduction of outstanding liability of the borrowers whereas against short facility amounting to Rs40 million of M/s Jet Era Textile Mills, bank has not realized the pledge stocks accordingly. It was further pointed out that since the facility (export finance) was fully secured against liquid assets and was regular till 30.06.2001, it does not qualify for under the SBP settlement scheme. Furthermore, as against pledge of Rs50 million the value of stock is reported at Rs16.380 million only.

In his concluding remarks for M/s Jet Era Textile Mills the senior director stated that reasons and causes in dilution of the pledge stock should be known before allowing any write-off.

The memo also pointed out that the SBP Circular No. 29 states that these guidelines are issued to facilitate the banks in dealing their NPLs. However, these instructions and guidelines do not affect in any way the legal right of the IDBP to recover the written-off loan if the bank still wish to pursue them legally.

The senior member of the IDBP’s board further stated that this observation had also been made by the statutory auditors in their current audit report. In these cases the bank hired the services of renowned lawyers to file recovery suits in the court and they are hopeful to receive favourable outcome, his memo said.

He suggested that it may be appropriate for the bank to continue legal process against the above borrowers for maximum recoveries rather then settling their liabilities at nominal amount. It was also stated that if the bank decides not to retain these cases then possibility of transferring all such cases to Credit and Investment Restructuring Corporation (CIRC) may be looked into in the light of their observation on the FSV of these cases, including M/s Murtaza Haseeb Textile Mills.

It was also put on record that unrealistic evaluation of the projects led the borrowers to get the projects at throwaway price in connivance with the evaluators resultantly depriving the national exchequer for billion of rupees, the memo maintained.

The senior director also pointed out that CIRC had also suggested that IDBP should take up the matter with the SBP Resolution Committee for appropriate revision and if no positive response is received from the Committee, CIRC will acquire such NPLs. Consequently, he suggested that the IDBP should consider to transfer these cases to CIRC rather then allowing them the direct benefit of huge write-off amounting to Rs3417.051 million which can be further increased due to exchange rate differential on outstanding future payments amounting to Rs1075.5 million (approximately) at current exchange rate.