CB comes down hard on errant finance companies

by Gamini WARUSHAMANA

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While the issue of the bogus finance company Sakviti Constructions hots up with the default deposits of the people exceeding over one billion rupees, the Central Bank (CB) last week warned banks and registered financial institutions who do not strictly follow CB guidelines.

Deputy Governor of the Central Bank Dr. Rani Jayamaha said that the CB will publish the names of those banks and financial institutions as well if they fail to adopt CB guidelines including the code of good governance introduced recently. Top CB officials addressed the media on the Sakviti debacle last week in Colombo.

CB Governor Ajith Nivard Cabraal said there is no bailout for Sakviti depositors. The Government cannot pay the Sakviti depositors with taxpayers’ money, because they had invested to get high returns or were attracted to the high interest rates knowing the risk, he said.

The Central Bank has done its duty and we have been informing the public on registered banks and non bank financial institutions that are authorised to accept deposits. The CB has spent Rs. 14 million on advertisements to inform the public. The banks had invested Rs. 4.4 billion on advertisements and therefore the Sakviti depositors cannot claim that they had not been informed.

Cabraal said that the CB is not responsible for the Sakviti fraud and the story ended at this point as a result of CB intervention. On September 19, CB officials raided Sakviti Constructions after studying the reports by the Non Bank Financial Institutions Division (NBFID) of the CB. We have to act according to the law and these financial institutions get money from the public in different forms and not as direct deposits. In this instance Sakviti Constructions had accepted deposits as employment contracts. Therefore, we have to study the case and confirm that they got people’s deposits before raiding them, he said.

The CB warned that investments on tree plantations, housing and properties, employment and various other forms are used by these bogus finance companies.

Cabraal said that the Banking sector in Sri Lanka is resilient and today world leading banks are collapsing.

However, due to the timely measures taken by the Central Bank, Sri Lanka’s banking sector is strong. Our decision to increase the reserve requirement and the introduction of a code of good governance were criticised and challenged even in the Supreme Court, Cabraal said.

The Director of the NBFID Sepala Ratnayake said that under the existing law, the Finance Companies Act 1988, is not adequate to effectively monitor the financial system as the financial sector in the country has expanded.

For instance, according to the law, CB officials can check files of the financial institutions but cannot check computers, he said. Therefore, the CB has drafted amendments to the Act and these amendments will be presented to Parliament soon.