Loan write-offs case: Supreme Court asks SBP to submit draft of new circular

While hearing a suo motu case pertaining to Rs256 billion written-off loans by commercial banks from 1971 to 2009, the apex court asked the SBP to submit draft of a new circular after consensus with all the parties involved in the case so that earlier formed commission could be asked to look into each and every case accordingly.
A three-member bench comprising Chief Justice Iftikhar Muhammad Chaudhry, Justice Muhammad Sair Ali and Justice Ghulam Rabbani resumed the hearing of the suo motu case.
The CJP observed that it was the duty of the SBP governor and other banks to examine the loan written off cases in the apex court but nobody came forward saying that we are notifying new circular whereas in real sense of the word SBP has not issued a single show cause notice to any commercial bank upon inadequate security provided against advance.
Allied Bank Counsel Dr Pervaz Hassan contended that Section 25 (AA) of the Banking Companies Ordinance 1962 provides procedure to write off loans. The CJP observed that Section 25 (AA) provides the procedure to write off loan through which SBP being a controlling authority scrutinizes the written off loan application and refers it to the federal government.
In the course of hearing, the bench observed that what would be the impact if Circular 29 is declared ultra vires and reversed in the larger interest of public because in the predetermined cases legal procedure was not adopted to write off loans.
"If the court reverses Circular 29 how much amount is involved and how it is possible to recover the amount of written off loans," the CJP asked the SBP counsel. The bench also asked the SBP counsel to provide record of the mechanism through which the Circular 29 was developed and exercised, however, the court maintained that loaning is a civil contract which must be endorsed against sufficient security and the bank should be held responsible if the basic checklist is ignored.
The CJP said the Central Bank must have interest to protect a single penny, adding that everyone in the country should be given a fair and equal treatment under Article 25 of the Constitution of Pakistan. He observed that institutions' strong delivery in the country guarantees flourishing of economy that is possible when everybody is given equal right.
The bench observed that the SBP should withdraw the licenses of those banks who were not following the rules in advancing loans. The CJP said foreign banks were providing best services and playing a positive role to finance industry comparatively, adding that after going through some classical cases under discussion, the court finds that loans were also disbursed on phone calls without pledging adequate security.
The hearing was adjourned till today (Wednesday).