Magistrate questions CB’s role in crisis-hit CIFL

Tuesday, 17 September 2013 01:05 - - {{hitsCtrl.values.hits}}

By Lakmal Sooriyagoda The Colombo Fort Magistrate yesterday questioned the Central Bank as to how CIFL finance company reached a position of dishonouring depositors if the Central Bank had supervised the activities of the finance company. Magistrate Thilina Gamage posed this question to the Acting Director of the Non Bank Finance Institutions of the Central Bank, when he informed Court that the Central Bank had continuously supervised the activities of CIFL as a licensed finance company.

Resurrection Plan!

Salient features of the Business Restructuring Plan proposed

Converting 60% of the existing public deposit of Rs. 3.40 billion to non-voting shares
Paying the remaining deposits after a grace period of two years. (Rs. 120 million after three years, Rs. 300 million after four years, Rs.300 million after five years and Rs. 640 million within six and seven years).
Pay 5% of nominal interest rate on outstanding deposits from the date the capital infusion takes place. The BRP also proposed to find new investor(s) capable of infusing capital amounting to Rs. 1 billion.
Reduce the staff cost to Rs. 7 million per month by way of reducing redundant staff.

H.B.D. Karunaratne, the Acting Director of Non Bank Finance Institutions of the Central Bank, told Court that on a previous occasion the CIFL Director Board had failed to submit the relevant documents to the Central Bank when it carried out supervision into the finance company. He further told Court that CIFL was liable to pay a sum of Rs. 1 billion to the depositors. The Central Bank maintained that Directors of CIFL have resolved to release funds to settle the bounced cheque cases. He further said that a Business Restructuring Plan (BRP) submitted by the Managing Agent (People’s Leasing Company) had been approved by the Monetary Board of the Central Bank. The BRP has proposed converting 60% of the existing public deposit of Rs. 3.40 billion to non-voting shares subject to obtaining the consent of the depositors and paying the remaining deposits after a grace period of two years. (Rs. 120 million after three years, Rs. 300 million after four years, Rs. 300 million after five years and Rs. 640 million within six and seven years). It has further proposed to pay 5% of nominal interest rate on outstanding deposits from the date the capital infusion takes place. The BRP also proposed to find new investor(s) capable of infusing capital amounting to Rs. 1 billion.

Finally the BRP proposed to reduce the staff cost to Rs. 7 million per month by way of reducing redundant staff. The Central Bank had observed that it was a responsibility of the Board of Directors of CIFL to implement the BRP under the supervision of the Managing Agent.