Ministry of Finance lashes out at Industrial Development Bank for loan write-offs

[Naveed Yaseen]

Bank needs cash injection of Rs3.2bn

Saturday, August 22, 2009
By Aftab Maken

ISLAMABAD: The Ministry of Finance has slammed executives of the Industrial Development Bank of Pakistan (IDBP) for imprudent lending and major write-offs in the last five years and constituted a committee of professionals for scrutinising the written-off loans.

A meeting on corporatisation and restructuring of IDBP, with Finance Minister Shaukat Tarin in the chair, authorised the expert committee to conduct a thorough examination of the lending process, disbursements and write-offs, revealed the minutes of the meeting.

The officials directed the committee comprising representatives of law and justice, State Bank, an independent banker and an independent auditor to fix the responsibility for initiating appropriate action against responsible persons for not following SBP’s rules while writing-off loans, the minutes showed.

The meeting also agreed that the State Bank would manage the direction of the bank after its conversion to Industrial Development Bank Ltd (IDBL).

Shaukat Tarin asked the Bank’s managing director about the negative net worth of the bank, expected recovery of non-performing loans (NPLs) and major liabilities.

Replying to the queries, the IDBP managing director said major write-offs in the last five years pertained to the cases transferred to the Corporate and Industrial Restructuring Corporation (CIRC) or settled under the SBP’s scheme BPD-29.

The Forced Sale Value (FSV) in respect of collateralised assets was Rs668 million as of June 30, 2009, he said, adding if investments in Federal Investment Bonds/shares and fixed assets were also considered, a total amount of Rs2 billion might be obtained.

The MD further explained that the current negative net worth of the bank was Rs28.17 billion (up to June 30, 2009) while total deposits were Rs3.836 billion. Outstanding liabilities in respect of the government and the SBP amounted to Rs24.921 billion, the minutes quoted the MD as saying.

With all these outstanding liabilities and deposits, the meeting was told that a cash injection of Rs3.249 billion was required to bring its equity to the level of zero. The meeting was told that all formalities for the conversion of IDBP into IDBL had been completed as per decision of the cabinet except the issuance of vesting order.

Regarding the gap in net worth of the bank, the SBP governor said it might be bridged by converting the liabilities of the government and the SBP into equity and by making cash injection of Rs3.249 billion.

After the issuance of vesting order and formation of IDBL, the SBP would take further measures while the possibility of converting IDBL into a development financial institution (DFI)/infrastructure bank through public-private partnership would also be explored, the minutes showed.

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