Old perception changed:

State banks strong, competitive - CB Governor

State Banks are strong and competitive today and the old perception has changed. Last year the highest profit was made by the People’s Bank, said Governor Central Bank (CB), Ajith Nivard Cabraal.

He said the Government has settled all its debt to State banks. There is a 12.5% increase in deposits this year compared to last year in banks and financial institutions and the sector is strong and stable.

He was addressing the media on Thursday to clarify the CB’s position on a debate that sparked by its recent paper advertisement.

Cabraal reiterated that it does not offer guaranty for the deposits in Banks and registered financial institutions and added that views expressed by some parties in the ongoing debate on the advertisement is misleading.

He said that various views have been expressed on recent advertisement published by the CB. This is the normal practice of the CB and we inform the public about banks and registered financial institutions monitored by the CB and ensures that they follow the regulations of the CB.

We recommend them as institutions that are safe to deposit money and avoid unregistered and informal options, he said.

Risk levels of these banks and financial institutions are different and as they bear the responsibility of maintaining a high standard the interest rates offered by these registered institutions are lower than the others.

The risk level of registered financial institutions and banks are also different and it indicates by their credit rating. Central Bank has two separate departments; banking supervision and supervision of non bank financial institutions to monitor the sector and in that way CB ensures the stability of these institutions. The law permits the CB to intervene at a crisis in institutions and CB has been exercising this authority.

However, the governor stressed that this does not mean the CB will guaranty the deposits of these institutions and CB or the government is ready to pay all deposits at a liquidation of such institution. CB has guaranty on deposits in T-bills and T-bonds which pay low interest rates.

Responding to a question, Cabraal said that in the case of National Savings Bank (NSB) the government guaranty NSB deposits under a special law the bank has set up.

The owners of the other banks are responsible for re-capitalisation of them in a crisis and therefore in that sense the government is responsible for the deposits in State banks. Cabraal said that this plain truth had to be explain due to misunderstanding among the public and this should not create panic among depositors.

The overall regulatory system is on right track. There is no uncertainty about CB intervening at this moment. The financial system of the country is strong and CB can ensure the safety of the institutions that have been registered. The CB has introduced several measures to ensure the security of the deposits. Deposit Insurance Scheme we introduced recently will cover deposits up to Rs. 200,000 commencing from January 2012. Finance Business Act, a new legislation to regulate the industry will be passed in Parliament soon and we also consider amendments to the Banking Act, he said. GW