A must read for everyone in Sri Lanka’s banking industry

A review of ‘Banking and Business in Sri Lanka’ by V.S. Nadarajah

By K. Godage

I write this review in the hope of providing the reader an enticing glimpse into an exciting subject – the flow of our progress from a plantation centric export economy to the diversified open market economy that we have today.

The author – a professional banker – describes this transformation by tracing the development of banking in Sri Lanka from the times of the Natukottai Chettiars who commenced their activities as merchant bankers during the Dutch rule to the present day of the ATMs and credit cards.

I congratulate the author V.S. Nadarajah for having brought out this long overdue publication that deals with some important issues of our modern economic history. He has a unique advantage in this effort. His vision is not blinkered with ideology. His analysis is based on the simple premise of identifying the difference between surplus and deficit as all bankers are supposed to do.

We have not had any book which recorded the history of Banking and Business in this country before in this lucid and readable manner that provides a bird’s eye view of a period that spans nearly a century. This is indeed a most valuable publication for he has in 194 pages recorded a story that could have gone into several volumes.

I feel strongly that he should seriously consider that possibility as his next project. As the Chairman of Hatton National Bank Rienzie Wijetilleke, the senior and respected banker in the country who writes in the Foreword to the book, this book is a must read for everyone in the banking industry in this country.

I hope all our banks would make this book available as recommended reading for their staff.

This book describes the evolution of both banking and business in this country with a clear insight into what banking was and how banks were managed in the past, and what banks are and banking is today. Banking today is very much a part of our lives even in rural areas and Nadarajah’s book narrates the story with near perfection.

The author has also discussed our post independence political history and of how and where we went wrong. He describes in a matter of fact style the mistakes of very learned people who believed in the infallibility of their chosen ideology as the means of achieving social justice.

Their commitment to redistribute wealth made them completely oblivious to the need to create wealth. The redistribution of wealth was reduced to populist slogans and the result was the pauperization of the country with pockets of privilege.

The book covers the 1960-’65 and the 1970-’77 periods when private property was anathema to the government and nationalisations was the order of the day, with even the small but popular Buhari Restaurant in Maradana, being nationalised!

This period also saw the creation of many State corporations. The State became a major player in the economy of this country, but political interference in management, nepotism, corruption and lack of accountability has made the State sector an absolute liability.

The State-owned enterprises that dominate the energy sector today are a glaring example of our collective folly and ostrich like view of our future. Today in China, State-owned enterprises make the Forbes list. Nadarajah I am sure will examine this issue in his next book.

As a non banker, I was quite fascinated by the story he has related; he holds your attention in a manner which I did not think was possible considering the subject. As I stated earlier, banking has become an important part of our lives.

How banking in this country evolved from the establishment of the first commercial bank in 1841 servicing the plantation economy to what it is today and the role played by banks in this transformation has been recorded in a style that engrosses the reader.

Nadarajah sets out how the foreign banks essentially serviced the plantation sector and the White Sahibs and of how local businessmen were discriminated against. The discrimination even extended to recruitment. In obtaining loans, they had to negotiate not directly but through intermediaries known as ‘Guarantee Shroffs,’ who had to guarantee repayment of such loans to the banks. An interesting fact with regard to the Shroffs was that they were all related to each other and came from the same caste and community!

The book relates the story of the ‘Nattukottai Chettiars’ from South India and the major role they played in financing the local businessmen in the expansion of internal and external trade. Writing of the banks in British and in the early post colonial period, he draws attention to the fact that British banks had a virtual monopoly of corporate business of multinationals, agency houses and British plantation companies even long after independence.

The author sets out the histories of these banks; the financing of the plantation industry and the export trade were the most lucrative fields of banking and were dominated by the British banks. One of those banks referred to as exchange banks was the National Bank of India which had several name changes, to become Grindlays Bank which subsequently merged with Standard Chartered Bank. The author makes some valid observations on the State-owned banks which no doubt the two banks would contest.

On his commentary on the evolution of commerce and industry the author describes the decline of our economy in the ’60s and ’70s because of the State-regulated economy where the private sector was emasculated.

In tracing the economic history of the country, he rightly points out that it was only after the defeat of the Socialists and their economic policies, and the opening of the economy, that the country saw rapid expansion and growth.

He mentions the opening of the first Investment Promotion Zone and the huge impetus the liberalisation gave to the banking industry and to business, and the new role played by the Bank of Ceylon and the emergence of a large number of new banks in the country.

He draws attention to the fact that the market based economy also resulted in banks diversifying and moving into new areas such as merchant banking, leasing and fund management, etc. Nadarajah also discusses Islamic Banking and also mentions how State banks were used by certain politicians to give irrecoverable Junk loans to their friends and relatives.

Nadarajah also discusses the Agrarian economy, the plantation sector and the development of business in this country and the impact of the change of government of 1977; his survey covers the opening up of the economy and the advance from virtual bankruptcy to some degree of prosperity despite the cruel civil war.

The book is indeed an invaluable record of Sri Lanka’s economic history in the post independence period where he recognises the contribution of some outstanding entrepreneurs such as Mallory Wijesinghe, Edmund Cooray, N.U. Jayawardene and Mark Bostock who withstood the ideological siege so that there remained at least the semblance of a groaning entrepreneurial spirit that could be revived. How it was revived and the crony capitalism that emerged is another story.

The author describes the demise of the Ceylon Turf Club and the banning on horse racing. The emergence of turf accountants by the grace of the ingenuity of a gifted alumnus of the London School of Economics who imposed a tax on a prohibited activity giving it a de facto recognition in those bleak days may be the prologue of Nadarajah’s next book. I suggest you read ‘Banking and Business in Sri Lanka’ first.