The order is issued during the hearing of a petition alleging that the SBP had written off loans of Rs256 billion over the past 39 years.—File photo

The order was issued during the hearing of a petition alleging that the SBP had written off loans of Rs256 billion over the past 39 years.

A three-member bench comprising Chief Justice Iftikhar Mohammad Chaudhry, Justice Tariq Parvez and Justice Ghulam Rabbani had taken up a suo motu action on media reports that the SBP quietly allowed commercial banks to write off Rs54.6 billion loans under a scheme introduced by former president Pervez Musharraf.

The court directed the SBP to submit by Wednesday details of at least 10 cases from each year in which at least two conditions under Section 33B of the Banking Companies Ordinance (BCO) were fulfilled before writing off loans. The section spells out the criteria for waiving a loan.

Advocate Syed Iqbal Haider, the counsel for the SBP, said that under Section 33B of the ordinance, the central bank had the authority to write off loans after fulfilling two conditions — security and rehabilitation of sick units.

However, the chief justice said the court intended to examine relevant banking circulars to ascertain SBP's authority under Article 25 of the Constitution which ensured equality of citizens.

The bench hinted at considering the constitutionality of Circular 29 of 2002 under which banks had written off loans given from the public money and observed that the SBP policy appeared to be open-ended with everybody exploiting it to serve his or her own interests.

Abdul Hafeez Pirzada, appearing as amicus curiae, cited a recent report in which the finance minister had informed a National Assembly committee that loans of Rs50 billion had been written off over the past two years. He said this had been done despite the fact that the apex court was seized with the matter.

Iqbal Haider said the SBP had submitted 49 volumes containing details. Besides, all circulars from 1971 to December last year stated that loans were waived under an amendment to the BCO in 1997 and SBP Circular 29 of 2002.

Salman Akram Raja informed the court that he would appear as counsel for the presidents of five private banks. The case was adjourned for Wednesday.

Soon after the Oct 2002 election, then finance minister Shaukat Aziz and his financial team at the SBP had approved a loan write-off scheme to ease out financial burden on business concerns owned by some leaders of the then ruling party.

Instead of launching an effective campaign to recover non-performing loans (NPL), the SBP had in Oct 2002 issued an incentive scheme to banks and DFIs to waive loans of organisations showing 'loss' for three years or more after dividing them into three categories -- (A) NPL up to Rs0.5 million; (B) NPL from Rs0.5 million to Rs2.5 million and (C) more than Rs2.5 million.

Politicians and big business concerns used the third category (C) to get billions of rupees outstanding against them written off by banks.