Police guard Pramuka; CB reassures shocked customers
As Central Bank officials moved in yesterday morning to undertake an urgent audit of the accounts of the Pramuka Bank to ascertain, among other matters, whether the reserves are sufficient to settle its debts, a senior Central Bank official said they would take all measures to safeguard depositors.

Asked whether it meant asking the police to arrest bank chairman Rohan Perera and his directors or impound their passports, Central Bank Director Padma Sirisena who is in charge of bank supervision, was non committal except to say "the Central Bank will take whatever measures set out under the law."

The Pramuka Bank's head office at Kollupitiya was placed under a police guard after its operations were suspended on Friday evening, while several shocked clients were turned away with little consolation.

The Bank Supervision Department officials of the Central Bank had been conducting examinations inside Pramuka Bank since yesterday morning while customers continued to arrive at the bank to find the status of their accounts.

The suspension of Pramuka Savings and Development Bank (PSDB) by the Central Bank on Friday night amidst widespread reports that its accounts were in a bad shape did not come as a surprise to many in the banking sector because of its high deposit lending rates and some bad transactions, analysts said.

"The deposits rates were too high just like the way smaller finance companies operated and attracted caution from other market players," said a senior banker who added: "of late we have stopped dealing with this bank."

While the state of accounts at Pramuka is still unclear and requires a comprehensive investigation, bankers said there had been uncertainty at Pramuka for many months and about three to six months ago, an overseas trip by Mr. Perera triggered widespread speculation among bank staff and the banking industry that he was not coming back. There was also speculation at that time that the bank would be closed.

Mr. Perera returned and denied the reports, saying the bank was sound and moving forward. The Pramuka chief was instrumental in setting up Seylan Bank within the umbrella of the Ceylinco group but quit under a cloud over alleged irregularities which also resulted in a credibility problem at Pramuka.

Banking analysts said Pramuka suffered losses in the region of Rs 300 million in 2001 but did not report that loss as all banks are required to do under Central Bank rules through a newspaper advertisement. "The loss is a very high figure but it was not public knowledge although the Central Bank may have been aware," one banker said.

Adding to the uncertainty at Pramuka was the resignation of three to four top officers at assistant general manager level about six months ago including the officer involved in marketing. "That was the time we decided to be careful in transactions with that bank as something was brewing there," a dealer at a foreign bank said.

The Central Bank director said they would complete an assessment of Pramuka's finances as soon as possible and inform depositors. "We will do it as fast as possible and doesn't necessarily mean it would take 60 days which is the maximum period allowed for such an investigation," she said.

In a late night statement on Friday, the Central Bank said it was taking action to suspend Pramuka on an order from the Monetary Board. "The Monetary Board will within 60 days determine whether the PSDB could be permitted to resume its business," it said, adding that no business could be conducted by the bank during this period.

The Central Bank's sudden move came in the midst of regular warnings by it through media announcements and advertisements telling depositors to beware of financial institutions that offer high interest rates. The warning was primarily aimed at dozens of unlisted finance companies which offer "unbelievably" high interest rates and are run into crises. In a recent announcement, the CB provided a list of banks, finance companies and other specialized institutions that were licensed to accept deposits and warned the public against making deposits in other institutions. Newspapers were also urged not to accept advertisements from unlicensed institutions.

"The move to suspend Pramuka could also be a warning to the public to be alert as to where to put your money," said a banker.

Plans to open up Sri Lanka's economy in terms of foreign exchange and allow a free and unrestricted flow of funds to and from the country, have triggered concern that it could lead to a run in deposits of mainly smaller banks. "The Central Bank has been gently warning the public that when restrictions are lifted, this could happen and to be conscious of where to put your money," a Central Bank source said.

Central Bank Deputy Governor W. A. Wijewardene said the suspension applies to Pramuka and its subsidiaries and not the associates in the holding company. "As far as we are aware, Pramuka doesn't have branches outside Colombo," he said adding that the books of the bank were being scrutinised to ascertain also whether it could be restructured or salvaged.

The Pramuka crisis is the worst since the Central Bank was forced to take over the assets and liabilities of the BCCI branch here and much earlier, Mercantile Credit. A crisis at Sampath Bank almost led to a Central Bank takeover until its founder, N.U. Jayawardene stepped down and a new management and a new chairman were appointed.

A Pramuka customer, A. Segarajasingham who came to the bank after listening to a radio announcement about the suspension said most of his family members had an account with Pramuka running into millions of rupees.

"My mother was shocked to hear the news," he said. Some clients came to the bank hoping they could withdraw money through the telemarketing machine but to their disappointment, they were turned away. Some came unaware that operations have been suspended and were in for a rude shock when they saw the Telemarketing Division also sealed.

Two policemen deployed by the Central Bank stand guard in addition to the two security personnel of the bank who turn away customers informing them of the suspension of all banking operations. Bank deposits amount to a staggering two and half billion, according to Central Bank sources.

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