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Foreclosure law to be promulgated this month

TAHIR DHINDSA

ISLAMABAD: The much awaited foreclosure law will be promulgated in the country during the current month, giving banks and DFIs direct role in the recovery of defaulted loans, official sources said.

Talking to the Business Recorder on Saturday, they said this would be an important stept to improve the State Bank Act, on which some work had been done in 1997. The foreclosure law, which would form the core of Banking Recovery Act, was watered down by the Parliament in 1997, the government being basically under pressure from its political allies.

Minister Finance Shaukat Aziz has promised to introduce the law with the World Bank team which recently visited Pakistan to review the progress on financial sector structural adjustment. Introducing legal and judicial reform was a part of structural adjustment process, and that was one area where more work was needed the mission had concluded.

The law, which might introduce new auction procedures would initially, be introduced by making amendments in the existing banking recovery laws. The streamlining action against defaulters would be based on four key changes to the existing banking law. First, the banks and DFIs, through the offices of the Prosecutor-General of Pakistan, will be facilitated to go for a direct auction of assets of defaulters. The procedure will not require any court decree, execution of which of which in the prevailing judicial environment of the country is considered nearly impossible by the legal experts.

Second, they (banks and DFIs) will be allowed to introduce the change of management in case the assets could not be auctioned or, have value that is less than the recoverable loan.

Third, banks may attach the property of defaulters, which at the present is not allowed by the law. This attachment would be direct.

Fourth, the banks and DFIs could go for the attachment of the personal property of directors or their guarantors. The spouses of loan defaulters and their dependent and even non-dependent relations would be treated likewise, if suspected that the property in their names actually belongs to the defaulters.

In this regard, it has been proposed that action should be taken against those bank officials also who forwarded and gave such loans without the presence of collateral or with insufficient collateral.

The Law Division will vet the law before it is finally approved by the highest authority and is promulgated through presidential ordinance.