Finance companies accuse CB officials of undue interference
Alleged undue interference by Central Bank (CB) officials into day-to-day operations of finance companies going beyond the bank’s authority has created a problematic situation in the country’s non banking financial institution (NBFI) sector, finance company CEO’s complained. A group of finance company CEO’s told the Business Times that CB officials are interfering with the business plans of their companies and blocking implementation of management strategies and objectives. They pointed out that the CB’s onsite NBFI officers with limited experience on business operations visit once a year to audit finance companies and impose unnecessary rules wasting one month of company work hindering its productivity.
The CB is also interfering into recruitments, product allocations, branch openings, interest payments, fund mobilisations, and customer complaints, they said adding that the management of NBIF’s cannot take responsibility of their institutions under these circumstances Most of the finance companies like Golden Key and CIFL have failed due to mismanagement of funds and investing in long term fixed assets which had no marketable value but not because of bad loans or branch expansions, they emphasised. On the other hand those companies could have been saved by the CB by providing financial assistance from the Sri Lanka Deposit Insurance and Liquidity Support Scheme, but it has failed to do so although this fund is being maintained from compulsory contributions of banks and NBFIs, they said.
According to CB data, total assets of the above fund were Rs.25.7 billion and total income Rs. 5.9 billion as at 31 December 2015. The sources said only one company, loss-making The Finance Co (TFC) has benefited from the fund so far with the CB granting a Rs. 6 billion loan. A CEO of Colombo finance company, who wished to remain anonymous, told the Business Times that the CB officers are against allowing the monitoring of banks and NBFIs to be transferred to an independent authority because they will lose their fringe benefits, he alleged. When asked to clarify the CB’s position relating to these complaints, a senior CB official noted that the regulatory and supervisory functions are carried out mainly through off-site surveillance and on-site examinations.
The directions and rules issued under the provision of the Finance Business Act cover minimum capital adequacy and liquidity requirements, deposits, provisioning for bad and doubtful debts, single borrower limits and limits on equity investments come under the mandate of the CB but its officers are not supposed to interfere into functions of NBFI’s, he explained. Matters relating to non-compliance with prudential requirements and any weaknesses and deficiencies in the financial condition, controls and systems of a finance company are brought to the notice of its Board of Directors, by the Central Bank to ensure that corrective action is taken by the finance company, he pointed out. Financial institutions, comprising around 48 in the country, play a pivotal role in the economy by promoting financial inclusion which makes financial services affordable to disadvantaged and low-income segments of society in contrast to financial exclusion where services are not available or affordable.
| NBFI restructuring process gets under way | |
| All non-bank financial institutions under the Non-Bank Financial Institution (NBFI) restructuring mechanism will soon be brought under the Finance Institution Restructuring Agency (FIRA). A rating system will be implemented to monitor finance companies and preventive measures be adopted by the Central Bank (CB) to safeguard ailing finance companies. This was revealed at a recent meeting chaired by Finance Minister Ravi Karunanayake with members of the Finance Houses Association of Sri Lanka (FHASL) in the presence of Secretary to the Treasury, Dr. R H S Samarathunga, CB Deputy Governor P. Samarasiri and Special Advisor to the Ministry of National Policies and Economic Affairs, R. Paskeralingam. According to minutes of the meeting it was agreed to allow finance companies to provide leases of vehicles up Rs.10 million. Loan to Value (LTV) of such leases is to be capped at 90 per cent for commercial vehicles and 70 per cent for vehicles acquired for personal use. An agreement was reached that a mechanism would be implemented to tie deposit mobilization to regulatory capital to prevent risky deposit mobilization practices of NBFI’s. Minimum capital requirement of NBFI’s has been increased to Rs. 2.5 billion by end 2016 and to Rs.4 billion by end 2018. A decision has been taken to segregate the microfinance business from the usual business of finance companies by forming separate companies to run microfinance operations and seek specialist investors willing to invest in this sector. The lending exposure to a family unit is to be capped at Rs.500, 000 and penal rates at 3 per cent. |