UMAR ATA BANDIAL, J.---In the year 2000 the petitioner made an investment of Rs.2.0 million with the respondent-Bank (bank) in its monthly income scheme under the "profit/loss sharing system".
At that time the petitioner earned a rate of profit of 9.0% on the bank's monthly income scheme earning Rs.16,000 per month income without deduction of Zakat. Thereafter from time to time the bank reduced the profit rate resulting, at the time of filing of this petition in the year 2004, to a diminished profit payment of Rs.4,463 per month.
2. Learned counsel submits that on the one hand advertisements in the press show the bank to be earning booming profits (2003.86% growth in after tax profit); whereas on the other hand, the rate of profit distributed by the bank to its depositors, including the petitioner, has fallen sharply. It is alleged that the bank is diverting its profits and not "sharing" these faithfully with its depositors. This petitions filed for advancing personal right and for protecting public interest to enforce the promise of profit/loss sharing by the bank. Accordingly, the petition was admitted to regular hearing to consider the points raised.
3. Learned counsel for the bank has informed that the "profit/loss sharing system" under which the petitioner made his investment with the bank does not contain any contractual commitment for a fixed or other rate of profit to be paid by the bank on its monthly income scheme. Clause 4 of the application -form for the monthly income scheme provides that the rate of profit to be declared on the investment is to be determined by the bank in its sole direction which rate would be final and binding on the parties. It is admitted that the rate of profit declared by the bank on PLS term deposits for 5 years has fallen from 9.5% per annum in January, 2001 to 2.5% in June, 2004.
4. Learned counsel for the bank has further informed that profit rates on PLS deposit accounts are declared by the bank with the prior approval of the State Bank of Pakistan (SBP) in terms of its BCD Circular 34, dated 26-11-1984 (Circular 34). This circular prescribes pro formas for data and ratio calculations based on the financial accounts of the bank. Profit rates are derived from the said calculations which are proposed half yearly by the bank to the SBP. Broadly speaking, the important variables in the ratio calculation done to derive profit rates of the bank are the "non- interest income" of the bank and its "administrative cost". The latter had to be apportioned to the bank's non-interest income operations. To satisfy the Court about the transparency and propriety of the accounts and profit rate calculations of the bank, its learned counsel produced the bank's financial statements for the year 2000 to 2004 to show that the bank derives income from different sources and the same is then allocated to relevant fund items after deduction of proportionate administrative costs.
5. From the half yearly accounts of the bank of the period ending 31-12-2003 its learned counsel had tried to show that allocation of the bank's non-interest income towards different heads is done strictly according to the SBP directives in Circular 34. This claim is said to be reinforced by the fact that the financial books of the bank are audited by specialist auditors and such audited accounts form the data base for deriving the PLS profit rates declared by the bank after scrutiny and approval of the SBP. He argued that in the light of documents presented on record, the contention by the petitioner that the income on his investment with the bank has been diminished unfairly is contrary to the record and the applicable law. Furthermore, he asserts that the grievance of the petitioner, if any, has ceased to survive and the question raised in the petition is academic because during the pendency of the petition, the petitioner has withdrawn his investment from the bank.
6. In rebuttal the learned counsel for the petitioner has reiterated his basic point that it is contrary to reason that rising profits of the bank should be reflected in declining profits rates on its PLS accounts. He also submitted that half yearly administrative costs of the bank amounting to Rs.4.103 billion shown in its financial statement of the six months period ending 31-12-2003 are excessive.
These are incurred at the expense of the depositors and must be checked. He has sought careful scrutiny of the record submitted but has not raised any specific objection to the bank's financial statements and PLS profit rate calculations under BCD Circular 34.
7. A glance at the financial statement of the bank shows that its profit after tax has risen from Rs.461.0 million in the year 2000 to Rs.6,242.0 million in the year 2009. More specifically, net mark- up/interest income of the bank has increased during the same period from Rs.8,778 million to Rs.14,387 million. Although these figures do not specify the exact amount of mark-up/non-interest income of the bank, however, this head should also possess the rising trend in earnings that in characteristic of the other sources of the bank's income. On the other hand, "profit distributed on PLS deposits and other accounts" of the bank has diminished from Rs.4,269 million in 2000 to Rs.1,963 million in 2004 which is noted in the financial statement under the description of "mark-up/ return/interest payable in local currency". There is a sharp decline in mark-up /return/interest payment by the bank during the period under consideration which reflects a conflicting trend between profits earned against profit distributed
8. In the foregoing context it is noted at the outset that the financial statements of the bank do not provide information that is specific and relevant for purposes of Circular 34 criteria and calculations. The ambiguity of representation ira the financial statements for example the clubbing of mark-up and interest income non-disclosure of administrative costs as a specific head and so forth is therefore, misleading and invites careful scrutiny.
9. There is another matter that also invites scrutiny. It emanates from the report by the financial controller of the bank which declares that the lowering of the profit rates distributed to the depositors of the bank is, inter alia, on account of the lowering of treasury bill rates, inter bank rates, lending rates and monetary policy enforced by the SBP. This revelation undermines the bank's stand that Circular 34 is the sole criterion for profit rate determination on its deposit account. The analysis requisite for examining this pleas as well as the bank's financial statement is, however, an enterprise that requires detailed information and expertise, neither of which is possessed by the Court; but more importantly, under the law such an exercise is both the function and duty of the SBP. Therefore, the Court is not inclined to itself explore matters that fall within the domain of an expert statutory institution.
10. Notwithstanding the foregoing, it remains the duty If the Court to ensure that the legal criteria and procedure for the declaration of rate of profit by the bank on its PLS deposits are fully met. This means that the requirements of Circular 34 dealing specifically with the subject of PLS profit rates are fully complied. The SBP, as the author of Circular 34 and its governing statutory authority, plays a regulatory role to ensure compliance. In doing so, it must ensure that disclosures made in the financial statements by the bank, and indeed all banks/DFIs holding public deposits under PLS system, should clearly state the information that is required for the purpose of driving the Circular 34 ratios and calculations. Moreover, Circular 34 imposes a duty on bank/DFIs to "ensure that their investments in non-interest bearing assets are substantially higher than the despites". Attention to these priorities should also be established in assessing the degree of compliance by the bank. Finally, the report by the financial controller of the bank reveals considerations for PLS profit rate fixation that are outside the contemplation of the criteria enumerated in Circular 34. This is a matter that requires probe by the SBP.
11. Having said so, the Court is not persuaded to adopt the suggestions by the learned counsel for the parties to undertake an inquiry into the propriety of the profits rate calculations or of the financial statements of the bank. As already observed, a consideration of the said material requires specialized expertise which is duly possessed by the SBP. For the purpose of safeguarding investor's rights, the matter is therefore, referred to the SBP to ensure that the provisions and objective of its BCD Circular 34 are duly met. This includes the maximization of the non-interest income from the deposits made by banks/DFIs as well as a strict check on the costs allocated to the non-interest income calculation.
12. Resultantly, this petition is disposed of with the observations made above and with no order as to costs.