Lankaputhra controversy: ACF writes to President

Wednesday, 8 June 2016 00:01 -     - {{hitsCtrl.values.hits}}

  • Corruption watchdog writes to President; ‘no reappointment for Mahendran under any circumstances’
  • Lankaputhra Bank says Central Bank Governor had ‘recalled’ technical assessment by independent supervision unit of Central Bank 
  • Mahendran denies recalling directive, only Monetary Board empowered to overrule the Supervision Dept
  • Meeting convened by Finance Minister to hear clarifications from Lankaputhra Chairman after 
  • Central Bank regulators find him ‘unfit’
  • Lankaputhra Chairman says he has appealed against Bank Supervision Department recommendation 



By Dharisha Bastians                

Anti-corruption activists fired a fresh salvo against the reappointment of Central Bank Governor Arjuna Mahendran when his term ends on 30 June with a special letter to President Maithripala Sirisena citing gross abuse of power and interference with independent regulatory procedures of the Central Bank of Sri Lanka (CBSL), a charge the Governor has strongly denied. 

In a detailed letter to President Maithripala Sirisena yesterday, the Anti-Corruption Front charged that Governor Mahendran was protecting Lankaputhra Development Bank Ltd. (LDBL) Chairman Lasantha Gunewardane. 

ACF charged that Mahendran had ‘arbitrarily’ overruled technical findings by the Bank Supervision Department of CBSL which found Gunewardane had violated several provisions of the Banking Act. 

Speaking to Daily FT, Central Bank Governor Arjuna Mahendran denied he had recalled the directive by the Bank Supervision Department. “The Governor absolutely has no power to overrule the Supervision Department – only the Monetary Board can overturn the rulings,” Mahendran said. 

The Central Bank Governor told Daily FT explanation had been sought from LDBL Chairman Gunewardane. Mahendran said Gunewardane was appealing the ruling by the Bank Supervision Department.

 The Anti-Corruption Front exposed correspondence in its letter to the President revealing that Finance Minister Ravi Karunanayake, who faces his second motion of no confidence in Parliament today, was also involved the alleged moves to reinstate a State bank official deemed unfit by the Central Bank’s bank monitoring and supervision unit. 

Governor Mahendran confirmed he had been in attendance at this meeting. 

“Under no circumstances should the term of the Central Bank Governor be extended,” ACF appealed in its two-page letter to President Sirisena, who is the appointing authority. 

The corruption watchdog urged President Sirisena to enforce the recommendations of the Central Bank’s Bank Supervision Department with regard to the appointment of the Chairman of Lankaputhra Development Bank. 

“The Central Bank Governor is not empowered to overrule technical assessments made by the Bank Supervision Department. Overruling the Department’s recommendation amounts to a ‘dictatorial’ act,” ACF Advisor Ranjith Keerthi Tennakoon said in his letter to President Sirisena. 

The Bank Supervision Department of Central Bank refused to ratify Gunewardane’s appointment as chairman in a letter dated 24 March, after he was found to be in violation of the Banking Act for corporate governance violations and violating confidentiality regulations under the Banking Act. 

The CBSL Bank Supervision Department addressed its letter to the General Manager of Lankaputhra Development Bank. The letter cited that Gunewardane had already been warned by the Bank Supervision Department about violating confidentiality laws during a meeting held in May 2015. 

However, in a letter dated 11 May, Company Secretary to the Lankaputhra Development Bank Gamini Pitipana told Secretary to the Ministry of Public Enterprise Development, Ravindra Hewawitharana, that the letter issued by the Bank Supervision Department on 24 March had been “recalled” by the Central Bank Governor. 

In his letter Pitipana said a meeting about this issue chaired by Finance Minister Ravi Karunanayake was held at the Ministry of Finance on 28 March. 

“However consequent meeting held at the Ministry of Finance on 28th March 2016 chaired by Hon Minister of Finance, the Governor of Central Bank Mr. Arjun Mahendran recalled the said letter considering the clarifications of the Chairman and the Board of Directors of Lankaputhra Development Bank. Minutes of the said meeting is attached herewith for your consideration,” Pitipana’s letter to Secretary Hewawitharana said. 

The letter from Pitipana to the Secretary of the Ministry of Public Enterprise Development has also been attached to ACF’s letter to the President on the controversy as proof of Governor Mahendran’s alleged interventions. 

The Bank Supervision Department of Sri Lanka’s Central Bank is mandated to monitor banks and financial institutions operating in the country. Its remit includes assessing the suitability and compliance of senior officials in banking institutions islandwide to ensure stability and confidence in the financial system. All banks and financial institutions registered in Sri Lanka are bound to comply with directives from the Central Bank’s Bank Supervision Department.

The Anti-Corruption Front in its letter to President Sirisena yesterday, said Governor Mahendran was already under a cloud over successive sovereign bond controversies that the opposition claims were never properly investigated. Appointed to complete former Central Bank Governor Ajith Nivard Cabraal’s tenure in office following the presidential elections in January 2015, the decision on whether Mahendran will be reappointed for a further six-year term will be made by President Maithripala Sirisena in the coming weeks. 


‘This is not a regular bank’: Lankaputhra Chairman


  • Cites heavy politicisation of LDBL transactions during former Govt.’s tenure

Lankaputhra Chairman Lasantha Gunewardane yesterday said he had appealed the decision made by the Bank Supervision Department of the Central Bank and said the alleged violations cited in the regulator’s rulings were tied to heavily-politicised transactions that had occurred at LDBL during the tenure of the previous Government. 

“The decision is now up to the Monetary Board,” he said. 

Gunewardane, who spoke to Daily FT last evening, confirmed being in attendance at the meeting at the Finance Ministry on 28 March and confirmed that Governor Mahendran had also been present.

Gunewardane said that the Corporate Governance issues cited in the Bank Supervision Department’s ruling referred to involvement in operational affairs of the Lankaputhra Development Bank, which he said was necessitated by the high percentage of non-performing loans granted during the Rajapaksa regime. 

“In some cases the collateral provided was State-owned land. Not a single letter of reminder was sent to the clients and no follow-up action. In one case, Rs. 6.7 million was issued as a payment to a printer in Rajagiriya on election day on 8 January 2015 by Lankaputhra Bank,” Gunewardane told Daily FT over the telephone. 

Gunewardane claimed that when he assumed office as Chairman, 44.8% of the loans granted by Lankaputhra Development Bank were non-performing loans. “I have now filed a complaint at the FCID about these cases, amounting to Rs. 1.7 billion,” he explained. “Most of these loans are political loans.”

According to Gunewardane, the Bank Supervision Department was citing violations of the Corporate Governance regulations governing licenced specialised banks because a chairman should only guide a board and not be involved in day-to-day operations in the bank. “But this is not a regular bank. It was heavily-politicised during the previous Government,” he said. 

Gunewardane, whose specialty is computer science and has no banking experience, said the confidentiality violations pertained to account information he had provided at a press conference after former President Mahinda Rajapaksa claimed that the Finance Minister had provided a list of clients to Lankaputhra Development Bank for loan disbursements.