Nov 19, 2009

How to rob a bank

By Shafqat Mahmood

The arrest of Sheikh Afzal and his son from Malaysia has come as a welcome relief to the Bank of Punjab (BoP) officials. The father and the son are principle accused in the Harris Steel scam, in which nine billion rupees were lent to the company without proper scrutiny and any real security.

The only reason that the long arm of the law became long enough to get them was the Supreme Court. The honourable chief justice and other judges on the bench refused to entertain any manipulative plea by the massively well-paid lawyers.

This is what an independent and clean judiciary can achieve. We have learnt from the press that during the tenure of the infamous Dogar court, known lawyers were doing ‘sauday baazi’ in this case and assuring the clients that they can get a positive decision from the judges. Mercifully, that has changed with the revival of the real judiciary.

Was this BoP fraud perpetrated because of negligence and incompetence on the part of the then bank management or was there more to it? In particular, did the political masters of the time have any role in sponsoring or abetting this fraud? This becomes relevant because the Punjab government is the principle share holder of BoP and the chief secretary of the province was then the chairman of its board of directors.

It is hard to say, and certainly impossible to prove in a court of law, but whispers are that one Moonis, the talented son of the then Chief Minister Chaudhry Pervaiz Elahi, was of a generous temperament. He was well known in Lahore at that time for being kind to anyone who made him happy.

But even if there was political facilitation, why did the bank management including the board cave in so easily? One reason in such situations always is that the managers want to hang on to plush and perhaps lucrative jobs. The political masters understand this and manipulate it to their advantage.

The absconder Hamesh Khan allowed himself to be manipulated not because he was naive. Baby-faced he may have been but he was no dummy. He also had his hand in the till. Money was being dished out as if there was no tomorrow. People, whose businesses could not carry a loan of Rs100 million, were given the amount. Others with no business experience became industrialists. Obviously, these guys had little or no intention of paying the money back.

Incidentally, I have come to the conclusion that only a fool in this country borrows in lacs or even a measly crore or two. The trick is to borrow billions. If you are a small defaulter, the bank will kill you, sell your property, and throw you and your family out of the small house you own. If you owe money in billions, it will come to you with an obsequious smile and beg you humbly and kindly to return its money.

The Bank of Punjab had a board of directors and it was supposed to perform a proper oversight role. But, that was compromised because some of the directors themselves were the biggest recipients of loans from the bank. In other words, they were interested parties and despite an obvious conflict between their oversight role and business interests, they continued to be part of the board.

More importantly, they were allowed by the principle shareholder, the Punjab government, to continue as board members despite getting huge amounts, and I mean billions, for their businesses. Most of these are now non-performing and the bank is scrambling to get them to give at least some of it back.

One reason why the Punjab government became so kind was that the directors were doing business with the chief minister and his family. The modus operandi followed was interesting. The Chaudhrys wanted to sell their sugar mills and wanted cash. They found buyers among some major groups and very conveniently, the BoP extended a loan to them for the entire amount. Also, interestingly, some of these groups were represented on the bank’s board.

In other words, the bank channelled money to its ‘controller’ via a third party. To make it more interesting, the third party was also on the board of the bank and thus is lending money to itself. Everyone was happy; the buyer, the seller, but the bank had an ugly frown on its face because the money was gone and it had little chance of ever getting it back. This was, of course, happening in front of the other directors but they either could not or had no interest in raising the red flag.

Another very kind act done by Hamesh and his gang to the bank was that they were happy to take on liabilities of other banks to make their old or new customers happy. This was done through a simple stratagem. Suppose you are a business house and you have borrowed money from five banks. Since they are private, they are tough in wanting their money back and don’t give any concessions.

So you approach the Punjab Bank to bless you and relieve you of your misery. The BoP very kindly gives all the money you owe to other banks and gives you nice, easy terms to pay it back. This is not an unusual business practice provided there is due diligence.

Not in the Punjab Bank, however. It was showering all and sundry with its munificence, many of them well-known pillars of Lahore and Punjab. Its directory of defaulters now looks like a guest list at a governor house ball. No wonder the elite liked Musharraf and his henchmen in Punjab. They all had such a generous temperament.

In the case of state-owned banks, this proclivity of excessive ‘generosity’ becomes lethal because so much cash is involved. Even now, another well-known bank, almost a national institution, is being used and misused by the political masters. The man in charge has been getting extension upon extension and he is not burning the midnight oil because of a deep desire for public service.

Some say that this bank’s scandal, when it erupts, will dwarf anything seen before in the banking sector. The saga of bank officials running hither and thither or hiding somewhere abroad will be repeated. The only ray of hope is that if the long arm of the law wants to, it can reach far and wide and abroad. If Hamesh is brought back it would be a salutary lesson to all and sundry in the banking business.

The simple fact is that the state has no business owning banks. It is just too tempting for its owners, the political masters, to misuse the power it brings. It is time that all such entities are sold off. These are not the best of times and the temptation is to hold on for a better deal. But, the longer the wait, the greater the chance of misuse.

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