People’s Bank Bill passed in P’ment

Friday, 20 September 2019 00:00 - - {{hitsCtrl.values.hits}}

Under new legislation, Bank will be allowed to increase authorised capital, issue debentures

By Ashwin Hemmathagama – Our Lobby Correspondent

The People’s Bank (Amendment) Bill, seeking House approval to allow the Bank to increase the authorised capital and to raise funds by issuing debentures, received approval subject to amendments yesterday in Parliament.

Moving the Amendment Bill on 22 August, the Government cited the importance of increasing the stability of the State banks in order to remain at the forefront of the banking sector, while retaining the current market share of 45%, which is expected to decrease due to the heavy competition anticipated.

However, the Opposition lawmakers, who were willing to allow the option to increase the authorised capital and to raise any sums by issuing debentures, were not happy with the independent decision-making capacity planned for the People’s Bank. With the Opposition seeking division, Government received 72 in favour to move on with the Bill while Opposition was only able to raise 37 against the Bill, excluding some of the amendments they proposed.

Eliminating all conspiracy theories that the Bill is an attempt to privatise the People’s Bank, which has assets worth Rs. 1.75 trillion, 7,900 employees in 737 branches serving over 10 million customers, enabling the Government to collect Rs. 140 million as dividends during the last 10 years, State Minister of Finance Eran Wickramaratne tabled the bill last month.

“Capital is necessary for a bank to grow and to be stable. According to BASEL regulations, there are international capital requirements. The Bank met the minimum requirements regardless of the Government in power. But meeting the minimum requirement is not enough for the development of a bank. Prior to 1978, there were a few foreign banks in Sri Lanka. Mostly they were the foreign banks established during the British colonial era in Sri Lanka. These banks had a large market share. Today, many are using banks and the local banks have lost market share. If continued, the local banks will continue to lose the market share and end up in the 25-35% range in another 10 years. Ultimately, it will end very low in twenty years,” he said.

“Ownership alone will not help the banks against the market share. The Bank of Ceylon and the People’s Bank are at the forefront in terms of service and technology. The private sector local banks will exceed the State banks, unless we increase the capital of the State banks,” he added.

According to the Government, the Bill will provide some autonomy and independent decision-making ability to the People’s Bank. “In Sri Lanka, our savings are less compared to other countries in the region. It stands around 6-7% of the GDP. But to increase capital, we could borrow money as a loan or issue debentures. We propose to allow the authorised capital of the bank to be increased from Rs. 1 billion to Rs. 50 billion in order to increase the financial stability of the People’s Bank. The BoC has Rs. 50 billion. People’s Bank can issue debentures without the requirement of Government guarantee, and to suit the market. This enables them to take independent decisions. Already the BoC and the NSB have the authority to issue debentures,” he explained. (AH)