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| Wednesday, 26 March 2003 |
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Amendments to Banking Act vital after Pramuka Bank incident by Channa Kasturisinghe The much talked about Pramuka Bank incident has provided enough reasons for the public to think twice before they invest their money in financial institutions as they are totally in the dark as far as the financial stability of the institutions are concerned. According to unconfirmed reports among the country's business community there are a few other registered banks and financial institutions which are in deep financial crisis and therefore it has become essential to bring about immediate amendments to the present Banking Act to avoid a repetition of the Pramuka Bank incident. At present there are several authorised and unauthorised institutions accepting `deposits' in various forms from the public in Sri Lanka. The Central Bank of Sri Lanka (CBSL) has repeatedly cautioned the public on investing in unauthorised financial institutions. The CBSL has published newspaper advertisements to inform the public of the institutions that have been registered to accept deposits from the public in order to clear the confusion. However, it has not ruled out the possibility of a certain amount of risk involved in investing in the institutions which are registered by the Central Bank. The Central Bank in its answer to the writ application filed by the depositors of Pramuka Bank maintained that the notices issued were intended to be factual statements of institutions registered to accept deposits from the public and were certainly not intended to be recommendations that the public could invest in any one of them without risk. It stated that when irregularities are observed in a bank, a regulator cannot immediately take drastic action such as suspension or cancellation of the licence. "A regulator therefore must act with caution balancing various interests involved and direct the bank concerned to take corrective action as well as monitor the activities of the said bank. Regulation does not offer absolute safety of one's funds and that by regulation, what is sought to be achieved is to ensure that institutions which solicit funds from the public act in a prudential manner which in turn can reasonably assure the safety of depositors' funds. The safety, stability and viability of a bank rest with the directors and the management of the bank," the Central Bank said. However, according to the President of the Pramuka Bank Depositors Association, Palitha Gamage, there was no indication of financial instability of Pramuka Bank up to the time of its suspension and the depositors had no way of finding out that there was mismanagement. "We cannot expect every citizen of the country to have a thorough knowledge about banking activities. There are people who cannot fill even their own deposit slip. We have invested in Pramuka Bank as it was a registered bank and nothing had been communicated to us about the financial situation of the bank other than various promotions by the Bank itself," Gamage said. According to a Central Bank official it would be possible to introduce measures to provide insurance cover to deposits but it could be an additional burden to profitable banks. However, experts say a repetition of the Pramuka Bank incident would affect the country's banking sector as depositors would lose confidence in safety of investing their money in banks. |
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