ISLAMABAD, May 8: A Supreme Court bench hearing the massive loan write-off scam said on Thursday that the court would examine the case ‘in depth’ to find out who were the beneficiaries because such benefits were never extended to poor people like widows and small farmers.

Headed by Justice Mohammad Nawaz Abbasi, the bench had taken suo motu notice of a press report suggesting SBP’s approval of a ‘loan write-off scheme’ in 2002.A huge sum of Rs54.6 billion in loans obtained from commercial banks by businesses run by some top politicians was quietly written off.

The case was adjourned to May 13 when senior counsel Hafeez Pirzada would begin his arguments.

The Supreme Court was told that the State Bank had recovered Rs16 billion of the Rs54 billion ‘dead loans’ while another Rs22 billion would be recovered in three years.

Advocate Syed Iqbal Haider, who is representing the SBP, told the apex court that such a recovery had never been made during the last six years.

Mr Haider appreciated the concern shown by the court, but requested it to also resume hearing of other suo motu cases, particularly the missing persons which involved grim human rights violations.

On a court query, Mr Haider said the loan write-off scheme did not violate Article 38 of the Constitution (promotion of social and economic development of people).

He said that the Oct 10, 2002 circular, 29 of the SBP was issued under a lawful authority under Section 33-B of the Banking Companies Ordinance to provide incentives for recovery from big debtors.

More than 50,000 borrowers of old irrecoverable loans had submitted applications for relief as offered under the circular 29 of the SBP, he said.

He said that out of these, 47,000 applications were of people who had taken small loans of less than 0.5 million.

Under the policy, about 25 per cent of the loans in addition to the mark-up would be written off in case a considerable amount of the original loan is deposited.

Earlier, in a 1,400-page reply, the SBP said the colossal level of non-performing loans (NPL) had hampered the financial health of banks and development finance institutions (DFIs) affecting their profitability and creating hurdles in the process of restructuring and privatisation.

A news item, based on a secret report submitted to the Public Accounts Committee (PAC) of the National Assembly, had suggested that 50,427 people, including politicians, civil and military business concerns and business tycoons of Karachi, Lahore and other cities were favoured through the scheme and their outstanding loans were waived in 2002.

The report accused the then chief ministers of two provinces as beneficiaries of the scheme as their families having big business concerns like sugar mills and ghee mills also got their loans written off.

Even some foreign firms and multinational companies and a private bus service operating from Lahore to different cities of Punjab were extended this facility.

Soon after October 2002 elections, the then finance minister Shaukat Aziz and his financial team at the SBP approved the loan write-off scheme after succumbing to pressures from politicians of the then ruling party.

Instead of launching an effective campaign for recovering NPL, the SBP issued an incentive scheme to banks and DFIs in October 2002 for waiving the NPL of organisations showing ‘loss’ for three years or more after dividing them into three categories. Category A included NPL of up to Rs0.5 million, category B of ranging from Rs0.5 million to Rs2.5 million and category C of more than Rs2.5 million.

Politicians and big business concerns exploited the benefit offered to the third category to get billions of rupees outstanding against them written off.

Shockingly, the report said, banks and DFIs were asked to recover maximum possible amount to settle loans falling under categories B and C through forced sale of available assets.

As a result of the scheme, the banks and DFIs settled over 50,427 cases involving outstanding amounts of Rs80.656 billion.