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“What the Government should do now is step-in to manage carefully the steps in building confidence in the overall financial sector,” Ajith Nivard Cabraal, Management Consultant and the former Chairman of the Institute of Chartered Accountants of Sri Lanka (ICASL) told the PRIU today. Cabraal’s comments were in response to the Central Bank announcement regarding the liquidation of Pramuka Savings & Development Bank Ltd (PSDB). The Central Bank of Sri Lanka announced on Thursday that the Pramuka Bank will be liquidated with effect from October 25, 2002 in accordance with a decision taken by the Monetary Board. A statement issued by the Central Bank said that the license issued to the Bank had been cancelled. “Before taking the above decision, the Board of Directors of PSDB was informed of the Central Bank’s findings in the examination of PSDB carried out under Section 76 L of the Banking Act. They were, in particular, informed of the fact that the mismanagement, unsound, improper and imprudent practices at the Bank by those responsible for the affairs of PSDB had resulted in PSDB being insolvent. The Board of Directors of PSDB (Directors) were given an opportunity to respond to these findings,” it said. However, Udaya Nanayakkara, the newly elected Pramuka Chairman said that it was “a very hasty decision” on the part of the Central bank. “In spite of the proposals produced by us to the Central bank they decided otherwise,” Nanayakkara said. “We had asked for just one credit line of Rs. 600 million for the revival of the Bank and the management of the Pramuka Bank was confident that the Central Bank would approve the proposal,” he said. “They however, did not demonstrate any commitment on their part or on the part of the shareholders of PSDB to contribute any funds to revive PSDB,” the Central Bank said. “In the Central Bank’s estimation and in the estimation of auditors appointed by the Central Bank a much larger sum than Rs. 600 million is required to revive the Bank. In the absence of a commitment by the Directors and the shareholders to bring in additional funds to PSDB, any contribution to PSDB will have to be out of taxpayers’ funds. Therefore, the Monetary Board had no option, but to cause the Director, Bank Supervision to take action to wind up PSDB,” the Central Bank statement said. “Collapse of any financial institution has a very big impact on the banking industry and the financial sector of a country. We cannot say it has not. But the collapse does not come about only due to mismanagement. There can even be other factors beyond their control, but right now we have to ease off the fear that is building in the financial sector otherwise it may head to greater disaster,” Cabraal said. Pramuka is the first Bank to be liquidated in independent Sri Lanka.
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