A meeting of the federal cabinet has allowed State Bank of Pakistan (SBP) to acquire shares of Zarai Taraqiati Bank Limited (ZTBL) and House Building Finance Corporation (HBFC) for settlement of their debts. An official said that these two entities owed loans to the SBP and a proposal was taken to the federal cabinet meeting chaired by Prime Minister Shahid Khaqan Abbasi how financial health of ZTBL and HBFC was affected by these loans.
An official said that The ZTBL has been providing loans to the small farmers with average loan size of around Rs 215,000 but its mark-up is very high largely because it is paying 7.5 percent mark-up to the SBP on Rs 56 billion it borrowed from it. This is the major cause for higher mark-up ratio on agriculture sector, said the official who has been involved in the meetings.
Sources in the Finance Ministry said that this issue of loans has been going on for quite some time and to settle it, Finance Division has arranged various rounds of discussion of ZTBL and HBFC with SBP. They added that loans involved principal amount and markup.
SBP''s total outstanding principal loan against Zarai Taraqiati Bank Limited was Rs 54.460 billion and a mark-up of Rs 40.156 (total Rs 94.616 billion) as of December 31, 2015. Similarly, House Building Finance Company Limited (HBFCL) owed SBP an amount of Rs 11.242 billion in principal along with a mark-up of Rs 5.122 billion (total Rs 16.364) billion as of December 31, 2016. The sources said heavy indebtedness was affecting the performance of both the Development Financial Institutions (DFIs).
To resolve this issue, a number of meetings with officials of SBP, ZTBL and HBFCL were held in Finance Division. After deliberations it was decided that the principal amount of SBP''s debt of Rs 54.460 billion would be converted into redeemable preference shares carrying a profit of 7.5% per annum, redeemable in 10 years in one bullet payment on December 31, 2005 to be converted into ordinary shares of SBP in ZTBL. Accordingly, the ZTBL Board has approved the aforesaid proposal and the Economic Co-ordination Committee of the Cabinet approved the issuance of Guarantee on December 27, 2016. Subsequently, SBP requested Finance Division to issue directive to SBP for conversion of ZTBL shares as per a prescribed mechanism.
With regard to HBFCL, it was decided that SBP''s total principal outstanding of Rs 11.242 billion along with the mark-up of Rs 5.122 billion as of December 31, 2016 would be converted into ordinary shares. The HBFCL Board has approved the same. Accordingly, SBP requested Finance Division for issuance of directive to SBP for conversion of SBP''s debt amounting to Rs 16.364 billion up to December 31, 2016 into ordinary shares of SBP in HBFCL''s equity.
According to sources, to implement the decisions of conversion of loans into equity in both cases, SBP did require the direction of federal government under sub-section (6A) of Section 17 of SBP''s Act, 1956 to convert its debt and purchase shares of ZTBL and HBFCL . In terms of the decision of the Supreme Court of Pakistan in Civil Appeal No.1428 to 1436 dated August, 2016 the "Federal Government" means the Federal Cabinet.
Keeping in view the situation Finance Division had proposed that SBP''s debt may be converted into equity and purchase of shares of ZTBL and HBFCL by SBP may be allowed under Sub-section 6-A of Section 17 of SBP''s Act 1956 as per following details:- (i) ZTBL, preferred shares, 5,446 million shares, Rs 10 per share, Rs 54.460 billion and ;(ii) ZTBL, ordinary shares, 4,016 million shares, Rs 10 per share, Rs 40.156 billion. The total amount is Rs 94.616 billion. HBFCL''s ordinary shares will be 1,636 million shares at a rate of Rs 10 per share, totaling Rs 16.364 billion.
The Prime Minister gave approval to the settlement of loans. The combined financial statements of the federation, provincial governments and district authorities for the years 2010-2011 to 2013-2014 were also placed before the Federal Cabinet for perusal.
The cabinet meeting also approved a proposal for issuance of 50,000 pieces of commemorative coins of Rs 50 in honour of Dr Ruth Pfau. The federal cabinet approved a proposal to replace Faryal Jooma with Haq Nawaz as one of the members of the Board of Directors of Pakistan International Airline Corporation Limited (PIACL). Appointment of Director Industrial and Commercial Relations (DICR) in Pakistan Ordnance Factories Board was approved by the Cabinet.
The federal cabinet agreed to a proposal to appoint Nawaz Raza, Chief Reporter of daily Nawa-i-Waqt and Sarmad Ali, Managing Director of daily Jang,as private members of the Board of Directors of Associated Press of Pakistan Corporation. The cabinet meeting also approved appointment of four officers of Inland Revenue Service as Accountant Members in the Appellate Tribunal Inland Revenue. The cabinet approved the appointment of Muhammad Azam as Director General Hydrocarbon Development Institute of Pakistan (HDIP) for a term of three years.
The meeting approved proposals of Ministry of National Health Services, Regulations & Co-ordination regarding maximum retail prices of drugs in principle, proposal of the Ministry of Education and Professional Training to sign a memorandum of understanding in the field of technical and vocational training between the government of Algeria and the government of Pakistan was also approved.
The cabinet approved the appointment of Rear Admiral Jamil Akhtar, HI (M) as Chairman Karachi Port Trust (KPT) for a period of three years. The cabinet approved appointment of Naeem Y Zamindar as the chairman Board of Investment.
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