LAHORE, June 19: While the State Bank and the federal ministry of finance are hoping to enhance agri-sector credit, the government's decision to withdraw some of the powers exercised for the recovery of outstanding loans by the Zarai Tarraqiati Bank Ltd , ZTBL, the main public sector institution for providing loans to the farming sector, may create new problems.

The ZTBL's clients are mostly influential landowners who have succeeded in augmenting their political clout in the present political dispensation. They are rarely, if ever, ready to clear their loans. Withdrawal of special powers from ZTBL officials can only harden the attitude of treating loans from a government organization as a non-returnable gift.

General Pervez Musharraf had announced concessions for defaulters in the Kisan Conference in Islamabad on June 10 on the condition that they paid before a certain date. That may have worked, but now that the threat of action that can spoil the image of feudal elements that are masters of all they can survey in their areas has been removed, it is doubtful if they would step forward to take the president's offer.

The concession for clearance of loans at 50 per cent payment was also obtained on false pretext as politicians representing the landed aristocracy and some officials reportedly painted a harrowing picture of the ZTBL's highhanded tactics against small farmers. The reality is that small farmers try to clear loans as quickly as their means permit while it is the big landlords who seek loan write-offs, and if that is not possible, wriggle out of their commitments by paying less than the actual amount.

The Agriculture Development Bank of Pakistan, ZTBL's predecessor, had recourse to the Land Revenue Act for the recovery of loans. This enabled the bank to secure the help of the district magistrate, that is, the deputy commissioner for declaring unpaid loans as part of land revenue. While many influential and well-connected landowners still managed to circumvent the recovery net, quite a few loans were repaid because of the intervention of the DCs.

This practice started in 1962 and continued till the ADBP was turned into a limited company. Meanwhile, the devolution plan dispensed with the office of the DC. ZTBL approached the government at this stage to make a provision for facilitating recoveries.

The government came to its rescue with a single-clause amendment to the Land Revenue Act by authorizing regional managers of ZTBL to act as recovery officials and vesting DCOs with the powers of the DC in this regard. That enabled ZTBL to pursue loan recoveries as per the previous mechanism for this purpose.

One-third of the amount from the current Rs 90 billion balance sheet of ZTBL is not committed while the remaining two-thirds isalmost equally divided between operational expenses and loans. Recoveries have been slow and difficult even with the support of the Land Revenue Act.

How the bank will go about recovering loans is now a big question. The only option would be going into litigation and operate through the Banking Council to get unpaid dues cleared, but the cost of intermediation would shoot up and even then recovery would not be assured.

On the other hand, the bank would have to continue approving and disbursing loans to stay in business.