K. Sivagananathan Memorial Oration 2021 – Part I: Siva and his contribution to banking industry

K. Sivagananathan

I am thankful to both the Association of Professional Bankers and the K. Sivagananathan Trust for inviting me to do the honours this year for my friend, colleague, and mentor, the late K. Sivagananathan, known to his friends as Siva, by delivering the 19th Memorial Oration in his name. It is an honour as well as a privilege for me.

We became friends in late 1980s after a chance meeting at the Central Bank. At that time, I was a Deputy Director of Economic Research at the Central Bank and Siva was a Deputy General Manager at the Bank of Ceylon. He saw me with another colleague of his, K. Kathiravelupillai, DGM, BOC, to provide some clarifications on a new unit trust being promoted by his bank. 

Unit trusts were a novel idea at that time and the Central Bank was a little hesitant in approving them without proper investigations. Siva made a lucid presentation, assisted by Kathiravelupillai, about the economic value of unit trusts convincing the Central Bank team that there was a case for approving the proposal by BOC. That was the birth of the Ceybank Unit Trust and it was the beginning of a long friendship between Siva and me.

Then, he became a colleague of mine when he joined the Central Bank as an advisor on banking and finance in late 1990s. Because of his wide experience in banking and finance and his enviable professional network among bankers, he had been handpicked by the late A.S. Jayawardena, Governor, to advise the Monetary Board on issues relating to the sector. Both of us worked together in several projects relating to the modernisation of the Central Bank. 

Two such important projects were the upgrading of the Institute of Bankers of Sri Lanka or IBSL to international standards and the creation of LankaClear by converting the Central Bank’s Automated Clearing House or ACH to a public-private-partnership with commercial banks. In these two ventures and in many more such projects, he was my mentor.

International recognition of IBSL’s qualifications

The IBSL project was started in 1998 after Siva was appointed as its Vice Chairman by Governor Jayawardena. At that time, I was its Director of Studies, a position that I held concurrently with my normal work at the bank. But the whole project came under me in 2000 after I was appointed Deputy Governor and Chairman of the Institute.

Governor Jayawardena’s instructions to us were that IBSL should seek accreditation from an international professional institute of repute. There were many options but the most suitable one was to approach the Chartered Institute of Bankers, London, which had been renamed at that time the Institute of Financial Services or IFS. 

Siva was a Fellow of IFS and had developed a strong network with it, while he was serving as the Manager of the London Branch of BOC, and later, as an active member of its Colombo Chapter. Siva had to shuttle between London and Colombo many times to negotiate with IFS and he did so at his personal expense because he used his regular visits to his family in London for this purpose.

It was a tough negotiation because IBSL at that time was not up to the global professional standards. Several audit teams that visited Colombo from IFS had identified areas needing improvements. To address them, IFS supported training programmes were conducted to upgrade the internal administration and quality of lecturers, paper setters and examiners. Siva coordinated all this work from London and finally was successful in accomplishing the impossible. 

Accordingly, we signed the necessary agreements with IFS in a simple ceremony in London in 2000 to get its accreditation for the qualifications offered by IBSL. With that international recognition, those who pass out from IBSL managed to get employment outside Sri Lanka. This joint accreditation continued even after Siva’s sudden demise in 2002 till IFS decided to withdraw from it after it had gained university status by the UK’s Privy Council in 2010. However, students who passed out from IBSL between 2000 and 2010 are eternally grateful to Siva for the upgraded professional qualification they had got from IBSL.

Creation of LankaClear

The creation of LankaClear as a public-private-partnership to handle the country’s cheque clearing and later the payment system was done as a part of the Central Bank’s modernisation project implemented from 2000 to 2004. I have written about the creation of LankaClear elsewhere (Accessible at http://www.ft.lk/columns/Channa-de-Silva-Technology-should-be-for-people-s-convenience/4-655988) but for the present purpose, the presentation of a detailed account is in order. 

I chaired the Steering Committee on Modernisation of the Central Bank under the guidance of the late A.S. Jayawardena, Governor. The objective of the project was to introduce new technology to Central Bank, make it a lean and efficient organisation, improve the skills base and competencies of its staff, and help Bank to concentrate on its co-objectives, namely, the economic and price stability and financial system stability. Under this model, the Central Bank could not run many ancillary operations which were not directly connected to the two co-objectives. Accordingly, the Automated Clearing House or ACH which had been established in 1985 could be safely handed to its main clients, the licensed commercial banks. To implement this, a sub-committee was setup under my chairmanship.

Two issues faced by the Steering Committee

Siva, with his maturity, knowledge and professional network, was the livewire in this committee. The other members were P.D.J. Fernando, Director of Information Technology of the bank at that time but later retired as its Deputy Governor, and the late Justin Wickramasinghe, Manager of ACH assisted by his Deputy, the late Ariyawansa.

We had two issues to resolve in addition to the legal problems. One was to get the licensed commercial banks on board on terms and conditions acceptable to both the Central Bank and the banking community. The other was the handling of the staff that had been recruited to the Central Bank specifically for ACH operations.

The Sri Lanka Banks Association or SLBA which negotiated with us on behalf of the banking community was not willing to take that staff to the outfit being newly created. It wanted to have the freedom to recruit its own staff to handle the operations. The problem was that this staff, recruited to the bank on qualifications lower than those required for entry to the bank’s non-staff grade, could not be absorbed to the bank because of the objections by the bank’s non-staff unions. There were a dozen of such unions and they were so diverse in membership and objectives that it was nearly impossible to have a productive negotiation with them. Both issues created an explosive situation and had to be handled carefully.

Getting banks on board

Siva was to handle the first issue, while I took it upon myself to resolving the second one. From day one, Siva started negotiating with SLBA coming up with draft after draft for a suitable structure for the new outfit. He had to satisfy both the Monetary Board and SLBA. The problem was further complicated because Sri Lanka did not have previous experience in structuring a suitable and acceptable public-private-partnership. 

When one proposal was made, it was not acceptable to the Monetary Board. When it was amended to meet the Board’s requirements, it was not acceptable to SLBA. But Siva was skilled in this type of back-and-forth negotiations and finally managed to zero in on a proposal acceptable to both. Under this proposal, the Monetary Board agreed to divest a part of its ownership in favour of a private limited liability company to be floated to handle the country’s cheque clearing function and payment system. 

An MOU was signed among the three parties, the Central Bank, SLBA, and LankaClear to provide clearing and payment services in Sri Lanka under Central Bank’s overall supervision. Thus, the Central Bank which was earlier both the owner and regulator of clearing and payments services was now to function only as the regulator cum supervisor. That was Siva’s achievement.

Handling the labour issue

About the labour dispute, the best solution was to take the staff attached to ACH back to the Central Bank despite their lower entry qualifications. For that, we had to win both the Monetary Board and trade unions to our side. 

I recall visiting ACH practically every day to negotiate with the staff for a harmonious solution. Finally, we succeeded in winning their consent to join the mainstream Central Bank by offering them better career prospects there, including opportunities for foreign training. This was successfully sold to both the Monetary Board and the trade unions. In that way, we were able to avert the dreaded labour dispute and allow LankaClear to mark out its destiny with its own business strategy. 

Siva was a trailblazer

In both these projects, Siva was a behind me like a strong tower. His advice, proposals, strategies, and counter strategies helped me as a person and the Central Bank as an institution.

Through his friendly approach, he had become an important member of the Central Bank family. Hence, it was with much heart pain that we learned in 2002 of his sudden demise in London, while still serving as the Vice Chairman of IBSL and Advisor to the Monetary Board. But he is still among us with his long-lasting contribution to banking education and initiating the move to introduce technology to the banking system.

Achievements of LankaClear since its formation

As Siva had expected, LankaClear has risen from height to height since its formation in 2002. Immediately after it was setup, LankaClear started US Dollar Cheque Clearing System or DCCS to facilitate the clearing of cheques drawn on Sri Lankans and cut the realisation time from about three weeks to about four days. In a similar development done to local cheque clearing, realisation time was cut from previous T+4 to T+0 in Colombo and T+1 in outstations by introducing Cheque Imaging and Truncation System or CITC in 2006. 

The Sri Lanka Interbank Payments System or SLIPs which had been started by ACH as an offline fund transfer system in 1993 was upgraded to a full online system by LankaClear in 2010. This was extended to online US Dollar payments in 2015. 

Another novelty introduced was the Common Electronic Fund Transfer Switch or CEFTS, enabling bank customers to make payments via Automated Teller Machines or ATMs, mobile phones, or internet at any time of the day. In 2013, a Common ATM Switch or CAS and a Shared ATM Switch or SAS were introduced to economise on the use of ATMs and provide a more convenient service to bank customers. 

The flagship product of LankaClear was introduced in 2021 in the form of a national payment platform (See: https://www.lankaclear.com/). Accordingly, LankaPay introduced by LankaClear enables bank customers to make retail and large payments to government departments and other parties. 

As of February 2021, four financial institutions, three commercial banks and one savings bank had joined LankaPay facilitating bank customers to pay income taxes, customs duties, and excise payments. The other banks, once they have modified their internal systems suitably to meet LankaPay’s requirements, are expected to follow suit soon. 

Had Siva been alive today, he would have been the happiest man to witness the healthy growth of the baby who came into being by his active contribution. 

Eighth K. Sivagananathan Memorial Oration

It was in this background that I was invited to deliver the eighth K Sivagananathan Memorial Oration in 2010 (Available at: https://www.nation.lk/2010/03/14/busi4.htm). The theme of this oration was that banks in the future will be technology-driven and it posed a serious challenge to bankers unless they train themselves to meet them. I, therefore, emphasised the following in the oration.

Bank of the future

“The competition, the need for making a wider outreach at low costs and thinning of interest margins will compel banks to find ways of reducing costs and still offering quality services to customers. To accomplish this feat, there is no other way than using modern technology generously. As the current state of technology stands, it is not a substitute for human beings. Technology, being the servant, must be under the command of a master. Therefore, though banks have embraced technology ardently, they have not displaced the human masters completely. That is why when banks grow, they must hire new workers in increasing numbers to take care of the growing business, on the one hand, and to succeed the retiring workers, on the other. Hence, both the technology application and the human capital engagement go hand in hand in current banking. But this may not be the trend in the future.

“The current research in ICT field is expected to lead the world to ground-breaking discoveries. At present, we live in a world in which machines cannot replicate human brains. Intelligence is still the monopoly of humans and all that machines can do is to work according to the commands made by their human masters. It is still a world where machines do not have intelligence of their own.” 

Bankers need continuous learning

But I cautioned that distributed artificial intelligence was within sight and intelligent machines will surely take over most of the routine jobs in banks. I said that the biggest challenge faced by a banker in the future was to accept an intelligent machine as a co-worker. That was because intelligent machines which has the capacity for self-learning, are faster and more efficient than bankers made-up of flesh and blood. Certainly, it is a fertile ground for discontent and frustration.

I also predicted that with internet and mobile phone banking, the bank branch would be a shrunk outfit in the future. Bank branches which would be called banking kiosks will be manned not by men and women but by intelligent machines. It is therefore inevitable that bankers in flesh and blood would be irrelevant in the future. To prevent this, I suggested that bankers should put themselves on a continuous learning and professional development programme. 

The new normal will be permanent normal

The last decade has seen the fast conversion of traditional banks to what had been predicted as the ‘bank of the future’ by me. The introduction of cryptocurrencies and technologies like the blockchain technology have expedited this process. However, banks began to feel the need for this strongly after they were hit by the prolonged economic lockdowns by the Government to prevent the spread of COVID-19 pandemic. 

A new concept called ‘the new normal’ was developed to address this issue. Since the world must live with the virus for another two to three years, the new normal has become the permanent normal today. It is therefore useful to examine how the bankers should cope with this new permanent normal. This constitutes the theme of my oration today. 

In the next part, we will look at how banks should respond to the challenges posed to them by this new permanent normal.

(The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at [email protected])