The People's Bank - a mainstay of the common people

by U.A. Weeraratne, Chief Manager (Audit) People's Bank, Head Office.

The People's Bank, which started its life as a financial institution serving specially the rural folk neglected by the existing banking system of Sri Lanka, completed 44 years' service to the nation on July 1. The banking system of Sri Lanka, under colonial rule was considered a by-product of the market oriented plantation economy. So several commercial banks were opened during the period 1843-1922 to meet working capital and short-term cash requirements of the plantation and commercial sectors. Although few domestic banks were opened later, to cater to the needs of local businessmen, it was difficult to open an account by a person who could not sign in English. Rural indebtedness was sky-rocketing since there was no institution to provide financial needs of the rural community.

The People's Bank was set up against this background in the year 1961 by Act No. 21 as a fully state owned bank. It stepped on to the banking field on July 01. with 40 employees. Its main objective was to develop the rural and co-operative sectors, as defined in clause No. 04 of the Act. These objectives were further extended to carry on the business of commercial banking, pawn broking, international and merchant banking activities. It is interesting to note that the bank from its inception has made a conscious effort to expand its services to the remotest areas of the rural sector, a segment once thought to be unbankable by the existing banking system. People's Bank strongly believed that harnessing of untapped rural resources was vital for national development, and extended its financial, physical and human resources to areas that were more development oriented and also of national importance.

People's Bank pioneered various innovative products such as cultivation loans, other loan schemes bound with contractual savings schemes, pawning advances secured by jewellery, rural banks and pawning centers etc. to assist the rural sector, which were not familiar to the commercial banking system. Branches were opened in small towns in rural areas where people converge for their day-to-day requirements. Rural Credit, Development and Land Redemption Departments were also set up to handle all issues and matters pertaining to the rural sector. It was attributed to their willingness to move away from traditional collaterals and depend on trust and relationships built with the customers. Every product they promoted has fulfilled a social need, meeting the aspirations of the particular segment of the community.

One of the most rewarding syndicated projects promoted by the bank, in conjunction with co-op societies and the Paddy Marketing Board (PMB) was the cultivation and marketing loan scheme for the agriculture sector which assured a fixed price for the farmers. Under this scheme, bank granted cultivation loans to farmers through the co-op societies and marketing loans to co-op societies and PMB to purchase produce from farmers and co-op societies respectively. Co-op societies recover cultivation loans from sales proceeds of the farmers and obtained Good Receipts (GR) from PMB after selling produce to them. Bank discounted GRs and recover loans granted to co-op societies and PMB. It was mainly driven as the mission of the bank expected by the people and the government. Various brickbats were aimed at the Bank as expected, from the conservative minded affluent class and anti progressive elements. But, common people embraced the Bank as an institution and a friend which fulfills their needs and aspirations. However, their role has led all other banks, including foreign banks to focus their attention on the rural sector. Over the years, the Bank has grown into a financially sound and stable bank, having its own multi storied head office building and at present 618 service points and about 30% market share of the banking field.

Even illiterate people were allowed to open bank accounts with an initial deposit of Rs. 5. Investment Savings Scheme (ISA) which was known as 'Pahe kramaya' was introduced to inculcate the savings habit among the people. ISA holders were entitled to obtain credit facilities for any purpose on the basis of their income, offering two ISA holders as guarantors. Housing loans play a vital role in the credit portfolio of the bank. Most of the low and middle income groups were able to have a shelter over their heads with the assistance of this loan scheme. Pawn broking system was firstly introduced by the People's Bank to perform a social responsibility, amidst the various criticisms of the traditional bankers. It was a bridging finance facility to accommodate urgent financial requirements of the rural poor and release them from the clutches of indebtedness. Today, every bank, including foreign banks, have stepped into this field and consider the pawning business as a cash cow (most rewarding business). However, People's Bank still retains the market leadership in the pawning service. People's Bank is the first bank, which acknowledges the importance of customs and traditions, and started Sinhala and Hindu New Year Day - Ganudenu at the auspicious time on the New Year's day. Today, it has become a very popular event in the banking field. Today, the bank is armed with a wide array of successful deposit products such as Isuru Udana, Sisu Udana, Vanitha Vasana (the first savings account introduced by a bank exclusively for women) Parinatha and Janajaya schemes covering the entire life cycle of the people. Some products are with special financial packages and reward schemes. Various lending products have also been created to cater to the financial needs of the various segments of society.

In addition to corporate governance, accountability and transparency, the concept and practice of Corporate Social Responsibility (CSR) has become a valuable concept in the business world. Since the business community becomes the largest employer and the source of revenue, the public will demand same welfare measures and socially responsible behaviour from them that they once required from the government. However, People's Bank, from its inception felt that they have a strong role to play in addressing social needs and practices. So all the products they created have a strategy, policy and clear direction on how and what to contribute to the society as described in the early part of this article. Even inculcating the banking habit among the rural community could be considered as a step in performing their social responsibility. At the time of Tsunami catastrophe, People's bank came forward immediately and set about relief operations to bring solace to the victims. Sponsoring annual Kandy Dalada Perahera, donation of a hostel to Colombo University and a children's ward to the General Hospital and scholarships to the students and sponsoring various art, culture and felicitation events are some of the CSR work undertaken by the Bank.

Even the annual profit of the bank goes to the Government coffers and is used by the Government for the benefit of the people. Global factors such as technological changes, new regulatory environment and more sophisticated requirements of customers etc. have transformed the financial service industry.

Since change is inevitable, only the banks that have capacity to change and innovate in their products and business could gain sustainable competitive advantage. However, a bank which relies on hundreds of branches and deals with a large number of customers cannot simultaneously embrace quality and ensure that the standards of all branches remain uniformly high. Even banks that have embraced quality programmes have taken several years for values to really be accepted throughout the banks. We believe that the People's Bank may also tackle these challenges, combining the very best of traditional and rural banking with new banking concepts and delivering an excellent service to the nation and continue successfully as a distinctive, sustainably viable bank in the future.