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Questions in Loan Write-off Matters There is much hype these days regarding recovery of written-off loans. The Honble Supreme Court has asked the State Bank of Pakistan to collect the details of all such loans written off since 1971.

It has been reported in a section of the press that the Honble Supreme Court would also look into the vires of Circular 29 of 2002 under which Section 33 (b) of the Banking Companies Ordinance, 1962 was amended to provide opportunity to borrowers to settle their outstanding liabilities on flexible terms and, where possible, help in revival of their businesses and sick units. I would like to take this opportunity to state that this is something that has been reported out of the context. Section 33 (b) of the Banking Companies Ordinance, 1962 was amended through the Banking Companies Ordinance (Amendment) Act, 1997 on May 31st 1997.

By virtue of this provision State Bank of Pakistan was empowered to lay down general guidelines for facilitating recovery of bad or doubtful loans by giving incentives to borrowers or customers to repayments within a specified timeframe by making adjustments or remissions in relation to interest or mark-up or part of the principal amount in cases in which all full recovery is not possible by reason of inadequacy of security or as part of a general scheme for the rehabilitation of sick units.

Then on October 15, 2002 State Bank of Pakistan issued BPD Circular No. 29 under the head of New Guidelines on Write-off of Irrecoverable Loans and Advances the pith and substance of which was to facilitate the banks to deal with the loans in loss category, that had been outstanding on the books of the banks since long and in which the probability of recovery was almost negligible. The other benefits envisaged at that point of time were the strengthening of banks balance sheets as well as the elimination of the practice of dragging the NPLs in the lending rate to the borrowers.

In view of this brief perspective it may be seen that there are actually two categories under which the loans were written off, one is where the loans were written off by the banks and financial institutions on their own and the other where the loans were written off under the regulatory guidelines. Each category has its own implications and considerations which must not be lost sight of while dealing with this complex phenomenon.

Other questions that arise in this scenario are as to what would be the fate of hundreds and thousands of cases already under litigation involving both the afore-referred categories and then who would be benefited at the end of the day in case the recovery is made in consequence of the present exercise i.e. banks, public at large, depositors or the national exchequer.

It must be remembered that after the enforcement of the Circular 29 regime a number of cases were filed and that are still pending adjudication before the superior courts of the country. It is interesting to note that some of the advocates who are now making speeches against such write offs are also striving hard before the superior courts to get benefit of the said regime for their affluent clients who were actually denied the said benefit by the banks and financial institutions particularly in view of their dubious credit history as well as for not meeting the criteria determined under the said circular. Moreover what would happen in the cases where the defaulters were granted benefit of Circular 29 regime and their loans were written off under some orders of the courts of law.

In this scenario as well as the complications involved in the matter one may be perplexed about the fruitfulness of this exercise particularly in view of the fact that such exercises have already been undertaken on various junctures in the past without any substantial outcome. bank loans