Pakistan is no stranger to banking scandals. One only has to recall names such as BCCI, Mehran Bank, the cooperatives banks, et al to be reminded that something is rotten in the state of Denmark. Recently, another scandal is brewing that promises to shake the banking sector and its regulatory institution, the State Bank of Pakistan (SBP) to its very roots. Theoretically, the SBP is supposed to be independent, especially where the formulation of monetary policy is concerned. Surprise, surprise therefore when the January 2015 announcement of the base interest rate emanated not from the SBP in Karachi, whose purview it is, but from Minister of Finance Ishaq Dar sitting in Islamabad. The minister thereby unprecedentedly pre-empted the SBP, raising in the process many eyebrows. This incident and the perception that the affairs of the SBP were being run virtually by the minister earned SBP Governor Ashraf Mehmood Wathra the epithet of a ‘yes man’. No prizes for guessing whose ‘yes man’. It therefore came as a surprise to knowledgeable observers when Governor Wathra appeared to stick his neck out a mile by announcing that troubled bank KASB was being ‘merged’ with BankalIslami for the princely sum of Rs 1,000! It may be recalled that KASB had been in trouble for some time, ostensibly because it had a large depositor base (150,000 depositors, Rs 57 billion) but a largely non-performing loan portfolio. The bank had been incurring losses for many years, and this haemorrhage finally landed it in a crisis when the SBP pressed it to inject enough capital to bring its affairs in conformity with the SBP’s rules regarding banks’ capital base. However, all the efforts of the SBP in this regard failed to cut much ice with the KASB’s owners, led by KASB group of companies’ chairman Nasir Ali Shah Bokhari. In the meantime, Wathra reportedly rejected two bids by Chinese investors to take over the bank, ostensibly because the terms they offered did not meet the bank’s requirements or fulfil the criteria for banking companies of the SBP. This reportedly annoyed Ishaq Dar, given the close economic ties Pakistan is currently forging with China in the context of the China-Pakistan Economic Corridor that promises to bring in $ 46 billion of Chinese investment. Reports say the SBP may have hurried into the KASB-BankalIslami deal because the deadline of the six-month moratorium on KASB (which froze the affairs of the bank) was about to expire. However, the ‘best possible deal under the circumstances’ touted by SBP Governor Wathra has raised more than just eyebrows. Fingers of suspicion are being pointed at the owners/sponsors of BankalIslami for being behind the push to ‘acquire’ KASB. It may not be out of place to mention that the major shareholders of BankalIslami are a well known but controversial stock market mogul Jehangir Siddiqui and a major media mogul. Between them and another ‘beneficiary’ shareholder, they are said to control about 57 percent of BankalIslami’s shares. Like in any whodunit, therefore, the trail of suspicion leads inexorably to who stands to benefit from this non-transparent, highly dubious ‘merger’.The amazing part of all this manoeuvring is the transfer of KASB to BankalIslami for a mere Rs 1,000. Admittedly, KASB has huge liabilities, but no one can deny that it also has considerable assets. Is the net worth of the bank then so negligible as to attract this laughable takeover sum? The whole deal smells fishy. The government does not need another scandal/problem on its already overladen plate. Since the SBP Governor, having made his case strongly for the merger through the media has seen it fit (or wiser) to shift responsibility onto the Ministry of Finance to give final approval for the deal, Mr Dar and his government may be better served by rejecting this merger that threatens to return the depositors’ money over time after ‘restructuring’ but at the cost of the shareholders of KASB, who will be left whistling in the wind. Following the striking down of this highly dubious deal, the Ministry of Finance should order an investigation into how this whole shindig was thought up, by whom, in whose interest. And following that, perhaps the ministry should punish anyone, including the SBP Governor, found responsible for what looks increasingly like skullduggery of a level that dwarfs past banking scandals and leaves the integrity of the SBP and the banking sector in tatters. The restructuring of KASB must be conducted professionally, transparently, and while taking into account the interests of both depositors and shareholders of the bank. Let this also serve as an object lesson in how not to allow fly-by-night operators to acquire deposit-taking permission to fleece depositors and shareholders alike. *