Lankaputra: Lending to loyalists
Grants Rs 173 million ahead of the 2015 presidential
polls:
by Dilrukshi Handunnetti
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LDB’s current chairman Lasantha Goonawardena
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 The Lankaputra Development Bank (LDB), created to boost
entrepreneurship in the island, is now in the eye of a storm, with the
Financial Crimes Investigation Department (FCID) probing a number of
loan facilities granted to political associates and public officials
without any collateral, amounting to over Rs. 1 billion.
In the absence of the recovery of loans - despite funds being issued
on the basis of loans with a recovery plan - LDB's current chairman
Lasantha Goonawardena has complained to the FCID with regard to the
alleged criminal misappropriation of public funds, listing out a series
of questionable transactions that had taken place in the recent past, to
the detriment of the LDB.
Among the key findings is the disbursement of Rs. 173.5 million among
some 262 recipients as loans in the run-up to the January 8 presidential
polls, all of which are now being probed.
In granting loans, a key decisive factor had been the regular
instructions of a former VVIP, s Sajin Vaas Gunawardane, who had strong
links to the bank. According to sources within the FCID, the absence of
collateral had been the norm when granting most loans.
The above stands in absolute contrast to the lofty mission statement
of the LDB, which states: "To be the core development bank in Sri Lanka,
significantly strengthening entrepreneurship at regional, national and
international levels."
However, bank officials themselves admit to the fact that the bank's
peculiar way of granting loan facilities in the past few years had often
reflected political patronage of the Rajapaksa regime with little
prudent decision-making that genuinely sought to support local
entrepreneurship.
Political loans
In addition to the political flavour of granting loan facilities,
there are other issues that ail the LDB. There are about 150 small and
medium scale loan defaulters, in addition to about 20 companies, owing
large amounts of money to the bank. The said companies have received
'special term' loans, whatever that means, between Rs.200- 300 million
from the LDB, due to special endorsements by the Finance Ministry or the
Presidential Secretariat.
In one highlighted case, now forming the subject matter of the
ongoing FCID inquiry, a project proposal to make crystallite gems was
submitted by a company named Rathnadeepa Exports (Pvt) Ltd. The request
was considered on 5 April 2012 by a committee chaired by Dr. Suren
Batagoda, Director General, National Planning at the Ministry of
Finance.
It was discussed to grant Rs. 300 million as a credit facility, which
did not receive a positive response from the Regional Development Bank (RDB)
and thereafter, referred to the LDB. Further discussions were held with
partners, Crystallite Gems and Jewels, where the project evaluation led
to the conclusion that there was an insufficient contribution from the
partners as well as insufficient collateral. Still, it is learnt that
Dr. Batagoda had instructed the bank to grant Rs. 20 million without
collateral "as the project appears feasible on the face of it." It had
also been minuted that the "Treas ury has indicated serious interest in
granting the credit facility."
In a another stunner, an organization by the name of Sathsidu has
raised Rs. 3 million by mortgaging a temple land belonging to the
Minuwangoda Raja Maha Viharaya in Julampitiya, the offered security for
raising the loan. It is learnt that this matter has raised many eyebrows
as the property is governed by the Buddhist Temporalities Act and
therefore could not be pledged by an individual or any organization.
Questionable boat purchase
In the case of Eksath Dheewara Udana, a local co-operative society
located at No. 22, Fort Road, Trincomalee. The bank had granted Rs. 75
million to enable the purchase of 15 deep-sea multi-day trawler boats
for 15 members of the said society. The initial request had been to
grant a facility of Rs. 75 million to the said society for the provision
of 40 -feet deep sea trawlers to 15 local fishermen.
However, things have changed in between and the bank found three
names of borrowers being added to the list.
They were: Samantha Galappatti, (former chairman of the society, now
deceased), Ariyawathi Galappatti (chairperson) and Susantha Galappatti
(member). It is pertinent to note that Ariyawathi Galappatti is also the
Trincomalee District Main Organizer of the Sri Lanka Freedom Party (SLFP).
The political clout came into play, and not so strangely, none of the
borrowers had opened accounts with the bank and proceeds of the loans
either had been paid to the boat manufacturers or credited to the
society's account, making it difficult to ascertain whether proceeds
were released to individual borrowers listed, according to an internal
audit report.
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Funds meant for enterprises
like these lent to loyalists |
There had been instances when the Presidential Secretariat issued
special notes of support for certain applications. Bettans Group of
Companies (Pvt) Ltd was one such privileged company. On 3 April 2008,
Gamini S. Senarath, Additional Secretary and Chief of Staff for the
Security the President and Deepa Liyanage, Assistant Secretary to the
President, endorsed the Bettans' request in a letter to the chairman of
the then bank.
In their request letter, made on a Presidential Secretariat
letterhead, it had been requested that banking facilities be enhanced
for effecting improvements to the footwear industry, as per the request
made by Bettans. It reads: "Accordingly, you are kindly requested to pay
your urgent and special attention to this letter of request a take
appropriate early action please."
Similar letters have been issued by other officials in support of
applicants, as in the case of Keen Wear (Pvt) Ltd for the opening of a
garment factory in rural Gallewa area in Wasgomuwa.
In July 2014, the Provincial Land Commissioner, Sabaragamuwa
Provincial Council, had written to the LDB, explaining that the said
company had raised Rs. 10 million by mortgaging the land but had failed
since 2005, to repay the money owed to the local pradeshiya sabha.
The Land Commissioner has written, stating that it was not possible
to cancel the long term lease through which the land had been rereleased
by the Rambukkana Pradeshiya Sabha for the bank to freely hold, in the
absence of Rs. 1,068,750, due to the State not being paid by the said
company. In support, the then Minister of Finance and State Revenue,
Ranjith Siyambalapitiya too had issued a letter, requesting assistance
from the Deputy Secretary of the Treasury on behalf of an company that
had defaulted payment to the local body.
 One may question as to what entrepreneurship was being promoted when
the bank granted without any qualms Rs. 100,000 for a musical show. The
request for funds came from Willie Gamage, Chairman, Mahinda Chinthana
Sahurda Sansadaya, who requested for the release of Rs. 100,000 for 'Mhirisara,'
a musical show held in September 2009, which was organized to raise
funds for the organization.
Musical shows
In March 2008, Chamal Rajapaksa, the then ports and aviation minister
and presidential sibling, had requested for a concession on behalf of
Crescent Button Manufacturing (Pvt) Ltd of Karandeniya in the Galle
District.
The button manufacturing company had receive enough letters of
endorsement to raise funds through the LDB, including Rajapaksa and
former nation building and plantation infrastructure facilities
minister, Gunaratne Weerakoon.
While there had been a number of questionable transactions of a
similar nature, the FCID has now commenced goring through each of the
transactions that smacks of political influence as the criteria for loan
facilitation.
A senior LDB official told Sunday Observer that many of the loans are
now considered 'bad debt' with close to 50% of them falling into the
category of non-performing loans.
The outstanding amount of non- performing loans reached over Rs. 1.9
billion, including accumulated interest, as at 30 April 2015. All these
loans had been raised during the period of 2006 to 2014.
As the investigations continue, it is learnt that many of those named
and unnamed so far, are being listed for recording statements in the
coming weeks.
[50% non-performing loans ]
A top official from LDB said the non-performance rate was as high as
48% by end January, but after six months of consolidated efforts, it has
been reduced to just over 40%, with the LDB initiating a fresh debt
recovery process.
"The LDB functioned more as a family bank, serving a select few,
which is shocking," he said, explaining that the bank was now
streamlining operations.
He also said the Financial System Stability Group (FSSG) of the
Central Bank was required to oversee this aspect but the LDB had
functioned in its own inimitable style without adherence to banking
regulations.
The FFSG is responsible for overall bank supervision, conducting
financial stability studies, payment and settlements, supervision of
non-bank financial institutions and financial intelligence.
Meanwhile, Finance Minister Ravi Karunanayake had gone on record in
parliament, in response to a question raised by JVP Leader Anura
Dissanayake that out of 228 credit facilities granted by the LDB, some
68.9% fell into non-performing category.
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