ISLAMABAD, May 15: The Supreme Court was informed on Thursday that commercial loans of businesses run by some top politicians that were written off during the past three years could still be recovered by invoking relevant banking rules.

Senior advocate Sharifuddin Pirzada, assisting a three-member Supreme Court as amicus curiae conceded that most of Rs54 billion loans were written off because of political pressures, adding that two former chief ministers of different provinces also benefited by getting their liabilities written off through a scheme which, according to the State Bank of Pakistan (SBP), was introduced to ‘clean up non-performing loans’ (bad debts).

The bench comprising Justice M. Nawaz Abbasi, Justice Mian Hamid Farooq and Justice M. Farrukh Mahmud had taken up suo motu notice of a report appearing in a section of the press suggesting SBP’s approval of a ‘loan writte-off loan scheme’ to quietly write off Rs54.6 billion loans taken from different commercial banks.

Mr Pirzada also informed the court about the practice being followed by banks in different countries and said that loans were extended with great care and on solid guarantees to ensure their return.

The court also asked Senator Babar Awan to assist it in the light of Islamic jurisprudence to help understand whether loan write-off was permissible in Islam.

Justice Abbasi observed that banks held people’s money in sacred trust and in an Islamic state, loans could not be written off or distributed by banks on their own.

Meanwhile, Advocate Khawaja Farooq, the counsel of two commercial banks, defended SBP’s scheme of writing off loans and said the process was not against the Islamic laws.

Under Section 33 (b) of the Banking Companies Ordinance 1962, the SBP had devised a scheme in 2002 to provide opportunity to borrowers to settle their outstanding liabilities on flexible terms and, where possible, help in revival of their businesses or sick units.

During the hearing, Justice Farrukh Mahmud asked the bank’s counsel to point out any relief offered by banks to those who had honestly paid their debts in time when the banks were writing off loans of those who had defaulted. The counsel, however, had no answer.

Syed Iqbal Hiader, the counsel for the State Bank of Pakistan, requested for a copy of the report of Auditor General about the SBP along with comments of the Federal Bureau of Revenue filed in the case which the court had also accepted.

Abdul Hafeez Pirzada, who is also appearing as amicus, will assist the court on Monday and Babar Awan on Tuesday.

Based on a confidential report submitted to the Public Accounts Committee (PAC) of the National Assembly, a news item had suggested that a total of 50,427 people, including politicians, civil and military business concerns and business tycoons of Karachi, Lahore and other cities had been favoured through the scheme.

The report had also accused the chief ministers of two provinces as beneficiaries of the scheme as their families having big business concerns like sugar mills and ghee mills. 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 the pressure by certain top politicians of the then ruling party to ease out financial burden on their business concerns.

Instead of launching an effective campaign for the recovery of non-performing loans (NPL), the SBP issued an incentive scheme to the banks/DFIs in October 2002 for waiving the NPL of the organisations showing ‘loss’ for three years or more after dividing them in 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 included more than Rs2.5 million.

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

Shockingly, the report said, the banks/DFIs were asked to recover the maximum possible amount to settle loans falling under categories B and C through forced sale of available assets. The purpose of the scheme was to clean the balance sheets owned by banks/DFIs.

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