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| Sunday, 28 September 2003 |
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Pramuka bank liquidation Restructuring committee cautions central bank There will be tremendous upheaval and protests if the Central Bank decides to liquidate the Pramuka Savings and Development Bank (PSDB). This will not create a good image for Sri Lanka too in the present scenario, warned the Chairman of Pramuka Bank Restructuring Committee K.C. Vignarajah. "If it happens, it is the responsibility of the Central Bank (CB). The arrogance of the Government made the young rebel against them at one time. If the bank is liquidated, the depositors and the staff will get on to the streets as they will have no other alternative," he said. However a top official of the Central Bank, who did not want to be named, said that the best option available is liquidation. Vignarajah said that several financial institutions have expressed interest in being a strategic partner in the PSDB, but have a perception that certain officials of the Central Bank are totally hostile to reopening the bank. They also seem to fear repercussions if they openly express interest at this stage. They will certainly come to the aid of the PSDB with funds and supportive action, if the Board of Directors is reconstituted and CB shows support. In this context, the refusal of the Director of Bank Supervision to even mention the names of the three parties who had shown interest subsequent to the CB advertisements, does not reveal good faith. Acland Holdings and associate company National Insurance Corporation Ltd., together hold 13 per cent of the PSDB shares. They were concerned about the plight of depositors as well as their own interests. The group has the advantage of a wide-spread branch network and together with its investment arm (Janashakthi Capital Ltd), have expressed interest in being a strategic partner. The delay in reopening will result in an ultimate liquidation of the bank and it has been proved that liquidation is not the solution. Therefore, depositors will be better off if they can control the operations of the bank and make it attractive for the big players in the financial sector to get involved, he added. "Within six months of taking control of the bank, we will have a liquidity situation of Rs 700 million (excluding new investments) and in my view, this is very attractive to bankers and other first class financial institutions," stated Vignarajah. "When we asked for information from the Central Bank, instead of the comprehensive statement, we got bits and pieces from time to time though we have asked for financial information including the schedule of depositors, borrowers as well as the classification of loans. "When we have the information on borrowers, we can try to persuade them to pay back the loans. Also we will be in a better position to negotiate with an investor and present the proposals for restructuring as the chances for restructuring will be very thin with the passage of time." The depositors request the revival of the PSDB by removing the Board of Directors and transferring all the shares of PSDB to a 'PSDB Depositors and Stakeholders Benefit Fund', to elect new directors for PSDB. The new Board will invite nominees of the Attorney General, Monetary Board of Sri Lanka and converting part of the deposits and investments into equity and long-term debentures, rescheduling the maturity dates of deposits, reducing interest rates on deposits in line with current market rates, securing parate execution rights, actively pursuing borrowers and loan defaulters to recover due moneys, add value to their shareholding by negotiating best terms with other suitable financial sector entities to introduce additional capital, enlarge the business and obtain Fitch Rating and Commercial Banking Licence, if required by the new partners and investors. The Central Bank should take steps to remove the Board of Directors and appoint new members nominated by the Stakeholders and Depositors' Associations who become shareholders on envisaged conversion of part of their deposits to equity and transfer the shares of the present directors and shareholders at fair valuation to the Depositors Fund. There would be incentives to collectively act to increase the value of this Fund for depositors' benefit, as well as offer stock options to new directors and employees who cannot be paid the high salaries prevalent in the banking sector. The bank had 160 employees and 15,000 account holders. The operations of the five-year old PSDB were suspended on October 25 by the Central Bank, which decided to wind up the business and cancel its licence on December 19. The Court of Appeal removed the cancellation of the licence of PSDB by the Monetary Board of the Central Bank. The court ruled that it was dissatisfied with the manner in which the Monetary Board had arrived at the decision and directed the CBSL to take alternative measures available in terms of the Banking Act to safeguard the interests of the depositors. |
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