Archives

Submission of the Depositors' Association:

As you aware, the Court of Appeal in its judgement dated 2nd July 2003, held that the Monetary Board of Sri Lanka had arrived at its decision to liquidate PSDB without properly considering the options other than its liquidation, and while quashing the decision to liquidate PSDB, directed the Monetary Board of which each of you is a member, by a writ of Mandamus to properly consider the same.

Subsequently, the Appeal preferred by the Monetary Board to the Supreme Court, was dismissed, on the basis of the application made on your behalf to withdraw the same with an undertaking to Court that the Monetary Board would comply with the Court of Appeal judgement. You also informed the Supreme Court that the steps taken in this regard (restructuring of PSDB) would be in consultation with inter alia the representatives of the depositors, Mr. K. C. Vignarajah.

Reply of the Central Bank:

With regard to paragraphs 2 and 3 of your letter, the Court quashed the decision of the Monetary Board to liquidate PSDB and directed the Monetary Board to consider further the options that may enable PSDB to continue with business without it being liquidated. Despite the submissions made on behalf of the Monetary Board, the Court was of the opinion that evidence had not been produced to the effect that all options to continue with the business of PSDB had been considered by the Monetary Board before it took the decision.

The Monetary Board's position on this matter is that, at the time it decided to liquidate PSDB 17th December, 2002, it had considered all options and the financial position of PSDB, including a report from Ernst and Young, a firm of Chartered Accountants with considerable bank investigations, audit and restructuring experience.

Also a large amount of public funds would have had to be infused to PSDB to make PSDB liquid.

Further, having observed the poor performance of PSDB that had resulted in a negative networth in excess of Rs. 600 million and evidence of suspected fraudulent transactions, the Monetary Board was of the view that it would not be possible to rehabilitate PSDB. Therefore, the infusion of substantial public funds to make PSDB liquid would not have made PSDB viable. Thus, public funds would have been wasted.

The Board was not authorised to use public funds for this purpose and had arrived at the conclusion that there was no option other than liquidation of PSDB, in order to minimise the losses and diminution of assets available to pay the depositors and other creditors as provided for in the law. It was on this basis that the Monetary Board appealed to the Supreme Court. However, on a suggestion in the Supreme Court, that the options for resuming the business of PSDB be considered further, the Monetary Board agreed to do so and the appeal was accordingly withdrawn. The withdrawal did not amount to an admission that as a responsible institution, the Board did not consider all available options.

Submission of the Depositors' Association:

My instructions are, that it naturally follows that all steps to restructure PSDB should be taken in consultation with Vignarajah, so as to ensure that the depositors' and creditors' interests would be properly protected.

Reply of the Central Bank:

With regard to paragraphs 3 and 4 of your letter, it is true that in view of the withdrawal of the appeal, the Monetary Board has to comply with the judgement of the Court of Appeal. This mean that the options for rehabilitating PSDB will have to be considered again. With regard to the role of K. C. Vignarajah, his status in the matter stems only from the fact that he represents the Depositors' Association and the Stakeholders' Association of PSDB.

When it was mentioned that Vignarajah should be a part of the restructuring process, this was objected to. What the Central Bank agreed to in Court was to consult the relevant parties who make proposals. In any event, it would be improper, if not illegal, for the Central Bank to discuss with Vignarajah, particularly at this stage, any proposals that may be submitted by other parties or to disclose to him the identity of such other parties.

After due consideration is given to all options and proposals, in terms of the Banking Act and the Monetary Law Act it is the sole responsibility of the Monetary Board to take a decision on the matter. In fact, this position has been acknowledged in the judgement of the Court of Appeal. However, before taking a decision, there will be consultations with the relevant parties.

Submission of the Depositors' Association:

I am instructed that even the Depositors themselves have sought to make a further proposal to restructure the bank, given that they are the direct victims of any liquidation of PSDB. In this regard, Vignarajah (on behalf of the depositors) has been persistently imploring the Central Bank to furnish essential particulars, so that even the depositors themselves may accordingly work out the particulars of a restructuring formula.

I am instructed that this being the case, even Vignarajah (who you are required to work in consultation with as per the Supreme Court Order of 4th August 2003) has not been furnished with the required particulars, despite repeated requests for the same. I am instructed that what has been furnished is grossly inadequate to draft any further proposal.

Reply of the Central Bank: With regard to paragraphs 5 and 6 of your letter, the Central Bank has forwarded Vignarajah the following information he had requested:

(a) list of 'deposits' setting out the amounts, maturity dates where applicable;

(b) list of 'lending' setting out the outstanding amount, the value of security and the classification into performing and non-performing with a sub-classification of non-performing loans into substandard, doubtful and loss categories;

(c) a schedule of deposits substantially in the form set out in his letter; and

(d) the copies of following returns submitted to the Central Bank by PSDB:

(i) Assets and Liabilities Statement as at 31 August 2002.

(ii) Income, Expenditure and Distribution of Profits Statement for the quarter ended 30 September 2002.

(iii) Statutory Liquid Assets Statement for the month of September 2002.

(iv) Return on Risk Weighted Capital Ratio as at 30 June 2002.

On a specific request made by Vignarajah, he has also been apprised of the transactions carried out by PSDB from 25th October, 2002 to 30th June, 2003. These included advances recovered and expenses incurred on salaries and utilities during this period.

Submission of the Depositors' Association:

In the meantime, a newspaper notification was published by the Director, Bank Supervision on 14th August 2003 in the Daily Mirror - presumably with your knowledge and authorisation - which bears out inter alia the fact that:

(a) You had failed to furnish the essential information required for anyone to be able to make a restructuring proposal even as at 23rd July 2003. Clearly, nobody would have been able to conjecture their ability/prospects of making a proposal without all essential information for the evaluation of the prospects for formulating the same.

(b) This being the case, on 23rd July 2003, at a monthly meeting with the CEOs of Commercial Banks, the Central Bank Governor had simply requested the CEOs to stay back after the meeting, if they were interested in making proposals - and that available information relating to Pramuka Bank would be furnished and further information required would be furnished later.

(c) In the circumstances, no one stayed back after the said meeting, and as at 13th August 2003, no bank had expressed an interest to the Central Bank to restructure Pramuka.

Reply of the Central Bank

With regard to paragraph 7 of your letter, we wish to reiterate our position that the financial position losses incurred and accruing and the prospects of resuming the business of PSDB were considered prior to the Monetary Board taking the decision to liquidate PSDB in December, 2002. This included discussions with some large banks and financial institutions on the possibility of restructuring not only PSDB, but also some other banks not having a strong balance sheet.

At the monthly meeting with the Chief Executive Officers (CEOs) of licensed commercial banks and licensed specialised banks, held on 24th July, 2003, the Governor explained the background to the matter and requested those present to express their interest in rehabilitating PSDB, if they were agreeable to do so.

They were also specifically informed that relevant information relating to PSDB's financial condition would be furnished to those interested immediately after the meeting if they stayed behind, and that any further information they require would be furnished later. CEOs of banks did not express an interest in the matter at the meeting.

Subsequently, the Director of Bank Supervision made further inquires and the Secretary General of the Sri Lanka Banks' Association (Guarantee) Ltd., which represents all licensed commercial banks in Sri Lanka, has informed the Central Bank in writing that no bank had expressed an interest in the matter.

Submission of the Depositors' Association

I am instructed to state that the conduct of the Central Bank Governor and officers of the Central Bank in this regard clearly demonstrate the absence of a genuine and positive intention to canvass and facilitate a restructuring of PSDB, given that (obviously) no one would be expected to even express an intention without the essential information being made available.

Reply of the Central Bank

With regard to paragraph 8, the Central Bank denies the allegations made therein. All parties who expressed interest have been provided with the relevant information they had requested, except for such information the Central Bank is precluded by law from divulging. The Central Bank has also agreed to assist them to obtain further information from PSDB.

Submission of the Depositors' Association

I am further instructed to state that by a subsequent newspaper advertisement dated 18th August 2003, the Director, Bank Supervision has called for expressions of interest and proposals to restructure PSDB before Wednesday 10th September 2003. I am instructed to state that the aforesaid time limit prescribed without any consultation with the Depositor's nominee Vignarajah, clearly indicates at least your lack of good faith in this whole exercise, given the background stated above. It is impossible for any person or body to forward proposals for the restructure of PSDB, when they don't even have the basic information; no wonder the Deputy Governor was quoted in the press yesterday saying that no concrete proposal has been received thus far.

Reply of the Central Bank

With regard to paragraph 9 relating to the newspaper notification of 18th August, 2003, expressions of interest and proposals were requested to be submitted by 10th September, 2003, since any delay in the matter will further jeopardise the interests of the depositors, in that it would result in the diminution of the assets of the PSDB available for distribution among depositors and other creditors, in the event that finally there is no options other than to liquidate PSDB. In view of the matters stated above there was no necessity to consult Mr. Vignarajah with regard to the press notice.

Vignarajah was aware, at least from the 25th of July 2003, that the Central Bank was prepared to consider a proposal submitted by the PSDB Restructuring Committee of which he is the Chairman. In the notification, it was mentioned that any person interested in expressing an interest in the matter could obtain relevant information from the Central Bank. Hence, if there was a person interested, he could have obtained information from the Central Bank. Further, if such person had a genuine interest in the matter, he could have even asked for an extension of the date.

Submission of the Depositors' Association

I am also instructed that Vignarajah has not been consulted by you to date in respect of this matter contrary to the undertaking given to the Supreme Court. The only meetings Vignarajah has been summoned for were with the Deputy Governor and the Director, Bank Supervision and that too was strictly limited to the issue of the depositors' own proposals and about providing information therefore.

Reply of the Central Bank

With regard to paragraph 11 of your letter, there was no undertaking given in Court that the Monetary Board would consult Vignarajah. In fact, when the Counsel for the depositors who had petitioned Court requested the Supreme Court to make an order for the Monetary Board to consult Vignarajah, the Court itself had mentioned that the matter would be handled by the officers of the Central Bank, including the Deputy Governor.

While it is correct that Vignarajah and other representatives of the PSDB Restructuring Committee were met by the Deputy Governor, Assistant to the Governor, the Director of Bank Supervision and other officials of the Central Bank on 25th July, 2003, on the invitation of the Central Bank, there has not been any request from Vignarajah or the PSDB Restructuring Committee to meet the officers of the Central Bank thereafter.

However, as stated above, there has been correspondence with Vignarajah. If Vignarajah still wishes to meet officers of the Central Bank prior to submission of a proposal, he could do so after making an appointment. What is of importance is that the proposal which the PSDB Restructuring Committee intends to make should be furnished as early as possible in the interest of the depositors and creditors.

Submission of the Depositors' Association

In these circumstances I am instructed to state your withholding essential information necessary for any party to make proposals for the restructure of PSDB, unilaterally prescribing a totally impracticable time- frame, and more importantly, taking all these steps without any consultation with the depositor's nominee Vignarajah, are all acts and/or omissions clearly intended to frustrate and render impotent the judgement of the Court of Appeal and the order of the Supreme Court made consequent to your own undertaking.

Reply of the Central Bank

With regard to paragraph 12 of your letter, the Central Bank has not withheld any information in its possession other than information which it is legally debarred from disclosing.

Since Vignarajah or the PSDB Restructuring Committee has not made a proposal by 10th September, and if that has been due to time constraints, Vignarajah or the Restructuring Committee could request a reasonable extension of time, having due regard to the fact that a delay could be detrimental to the depositors and creditors.

Submission of the Depositors' Association

Thus, I am instructed to demand and demand is hereby made that each of you should forthwith take effective steps to remedy the aforesaid and recall the advertisement prescribing the time limit.

You are further required to immediately take steps to consult Vignarajah and in consultation with him agree on the effective and meaningful steps that ought to be taken for the restructure of PSDB and any timeframes necessary for same.

Reply of the Central Bank

With regard to paragraph 13 of your letter, as stated above, if Vignarajah wishes to consult the Central Bank he could seek an appointment with the Director of Bank supervision or the Deputy Governor. We do not see any necessity to recall the notification.

The Central Bank has taken all possible steps in the circumstances to see whether there is a possibility of reviving PSDB. We see no purpose at this stage for the Central Bank to consult Vignarajah, except with regard to a proposal that he wishes to make.

www.crescat.com

News | Business | Features | Editorial | Security
Politics | World | Letters | Sports | Obituaries

Produced by Lake House
Copyright © 2003 The Associated Newspapers of Ceylon Ltd.
Comments and suggestions to :Web Manager