Although, the banking sector, time and again, has been revived but the present scenario indicates that history is to repeat itself with unprecedented intensity.
In 2003-2004, Rs 250 billion credit was disbursed by the private sector for agriculture, SME's, consumer finance, personal loans and corporate finance which consequently has grown in large scale manufacturing by 17%, with an overall growth of 6.4%. In all terms, it portrays a promising picture of the private sector's contribution towards the economic upliftment of our country. But, meanwhile, it must not be overlooked that the credit agencies, or the banks have exposed themselves to risk which has no benchmark in the financial history of Pakistan. I draw your attention to some of the reasons, which, if not remedied in time to avert the impending financial crisis, will put the country in grave trouble.
The biggest trouble spot is the increasing ratio of non-performing loans which is around 30% of the overall loan portfolio of banks and is expected to rise in the near future. Already, due to low interest rates, the banking industry is hit hard and to cap it all, the risk of NPLs has aggravated the concerns of the banking industry. Let us analyse what are the reasons for the increasing NPLs and what are the bottlenecks in the recovery of loans.
The foremost reason for the NPL is fake financial statements. This practice is rampant in banks. By giving two to three thousand rupees, the parties, which either have no financial records or avoid showing the true financial picture of their business, get pre-prepared and duly stamped financial statements by chartered accountants.
The bankers, in the name of their performance and for some kickback from that money, advance credit worth millions to parties, which are worth nothing. As a result, banks face heavy losses.
Many such banks, in the past, have become bankrupt due to such malpractices, like the NDFC, Prudential bank etc. The situation is pathetic because it poses many questions as to the credibility and reliability of chartered accountants - not to say that of the already corrupt bankers.
Secondly, mortgage deeds, NOCs, mutations etc and such essential documents prove to be false when a suit is filed and the concerned authorities take no responsibility, ultimately leaving the bank with the Hobson's choice of bearing the losses.
The banking courts are so lazy in their proceedings and in dispensing timely justice that banks rather prefer to a settlement, at a loss, with the party or writing off the debt altogether.
Seeing banks helpless in the above cases, the parties are naturally encouraged to cheat the banks and gain illicit money. Such a mess can only result in a crisis, tomorrow, if not today. State Bank of Pakistan has taken many steps to clip the wings of such corruption and to bring transparency in the procedures of the banks, like the Credit Information Bureau and know your customer campaigns etc. But due to the apathy of other concerned institutions, like the corrupt bank staff inefficient banking courts, the irresponsible attitude of district registration and housing authorities etc, all has proved to be futile.
Therefore, it is high time the government and the State Bank of Pakistan, in collaboration with all the concerned players in the financial sector devise a fool proof system to keep the intruders at bay, so that financial sector may sail smoothly.