Genesis and growth of Bank of Ceylon - beacon to the nation

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The Bank of Ceylon is celebrating its 70th birth anniversary tomorrow (August 1). There is no traditional significance in a 70th anniversary, unlike a Silver Jubilee, Golden Jubilee or Diamond Jubilee etc., However, seven decades of its existence has been of great significance to the country and its economic development

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Ranjith FERNANDO

The genesis of the Bank of Ceylon goes back to the demand in the 1930s, for the creation of a Government sponsored indigenous bank to remove the disadvantages under which Ceylon landowners and businessmen had to operate at the time. Commercial banking in the island was the monopoly of foreign, mainly British banks.

They were notably, Hong Kong and Shanghai Banking Corporation, Chartered Bank, Eastern Bank and P and O Banking Corporation which were called Exchange Banks primarily engaged in financing foreign trade in the island.

There were also five branches of private Indian banks, viz., Imperial Bank of India, Mercantile Bank of India, National Bank of India, Indian Bank and Bank of Chettinad, in Colombo but these catered solely to the needs of the Indian business community operating here.

As far as availability of credit was concerned, foreign banks presented a blank wall to Ceylonese landowners and businessmen. Perforce, they had no alternative but to turn to the Natucottai Chettiyars who carried on a flourishing money-lending business in Pettah, mainly in Sea Street and New Chetty Street and also in other parts of the island. It is recorded that there were 556 Natucottai Chettiyar firms scattered all over the island by 1934.

The British banks employed covenanted Ceylonese Chroffs, who were empowered to grant loans up to specified limits at their discretion. These loans were granted mainly, if not entirely, to the Chettiyars, perhaps because they were considered safe risks. The Chettiyars, in turn, lent this money to Ceylonese landowners and businessmen at exorbitant rates of interest. Thus, Ceylonese landowners and businessmen were prevented from competing on an equal footing with the predominantly British-owned tea and rubber estates and foreign business firms. Loans to Ceylonese were granted by the Chettiyars either on mortgage of immovable property or promissory notes.

Matters reached a climax with the onset of the worldwide depression in the early 1930s. A great many Ceylonese landowners and businessmen defaulted in the repayment of their loans and the Chettiyars took them to Court. Having obtained judgement against their debtors, the Chettiyars put the mortgaged properties and other assets for sale and themselves bought them up for absurdly low prices. Many valuable Ceylonese-owned properties and business passed into the hands of the Chettiyars in this manner.

This development led to a public outcry for the establishment of an indigenous Government sponsored commercial bank to cater to the needs of Ceylonese agricultural and business interests. Government investment in, and aid for such a bank were imperative, since there was insufficient indigenous private capital available to set up a viable commercial bank independently.

Even this modest demand was strongly opposed by the British banking business and plantation interests, who saw it as a threat to their monopolies. However, a political factor that contributed to a favourable climate for the creation of such a bank was the introduction of the Donoghomore Constitution in 1931, which gave Ceylon a limited measure of self-Government, albeit subject to the British Governor’s power of veto. At the instance of the State Council and the Board of Ministers the Government appointed the Ceylon Banking Commission headed by Sir Sorabji Pochkhanawala an imminent Indian banking and economics expert.

In 1934, the Pochkhanawala Commission recommended the establishment of a Government-aided bank with sufficient capital to enable it to operate on equal terms and maintain its prestige with the foreign-owned banks operating in the island. It was the Commission’s view that this bank should be in a position to win the confidence of the public, whose savings it could then mobilize for the purpose of national economic growth. The Commission recommended that Government funds deposited in foreign banks be transferred to this bank.

The State Council unanimously resolved that a state-aided bank be set up on the lines recommended and this political process culminated in 1937 and the Bank of Ceylon was established on August 1, 1939 in the premises of the bank’s present City Office at Bristol Street and declared open by the British Governor Sir Andrew Caldecott.

The factors and events that led to the birth of the Bank of Ceylon were many and complex. But, if any individual can be singled out for credit for the founding of the Bank, that person is the late G.C.S. (later Sir Claude) Corea, Minister of Commerce and Industry in the second State Council. Among the Ceylonese Members who supported him in this matter were Messrs. George E. de Silva, Peri Sunderam, E.W. Perera, S.W.R.D. Bandaranaike, G.G. Ponnambalam and H.W. Amarasuriya.

Expansion and growth

The first Chairman of the Bank was Sir Earnest de Silva who held the post from 1939 to 1954. Its first General Manager was a British banker, W. B. Mackay who was followed by J. H. Mortlock in 1942 and A.T. Hunter in 1949. Bank of Ceylon’s first Ceylonese General Manager was the eminent banker C. Loganathan who served the Bank from 1953 to 1969.

The Bank of Ceylon started its business with British Managers and catered mainly to the mercantile and plantation community. This was the respectable upper and middle income segment of society which was a class by itself. The medium of transaction of business was in English. For these decades the Bank of Ceylon continued to expand by opening branches in outstation towns and opened an office also in London (1949). By 1961, the Bank had 28 local branches.

In 1961, the Bank of Ceylon was made a fully State-owned bank and restrictions were imposed on the business operations of the foreign-owned banks.

The People’s Bank was also set up in 1961, and the two banks together became virtual monopolies in the banking industry in Sri Lanka. The spectacular growth of the bank of Ceylon and People’s Bank was mainly due to this monopolistic situation and Government funds being channelled solely to these two banks by Government regulation.

It is impossible to speak about the growth of the Bank of Ceylon in isolation and without reference to People’s Bank as these giant institutions functioned on a parallel and on a complementary basis, impacting on the banking activities in the entire country.

While the Bank of Ceylon catered to the needs of one class of people in society, the setting up of the People’s Bank gave an entirely new dimension to banking activities in Sri Lanka. By Statute, the People’s Bank was, “to develop, the co-operative movement of Sri Lanka, rural banking and agricultural credit by furnishing financial assistance to co-operative societies, cultivation committees, and is empowered to perform activities now performed by the Bank of Ceylon.”

The People’s Bank serviced small time businessmen, the professionals, the low income groups in rural and urban sectors. The depositors at the beginning were the Sinhala and Tamil speaking classes not proficient in English. The medium of business as well as administration was mostly in Sinhala and also Tamil languages. In four years, the People’s Bank had 50 branches, whereas the older Bank of Ceylon had only 28 branches. The expansion of the People’s Bank was prolific. Together, these two banks dominated the banking industry in the country.

Opening Agricultural Service Centre (ASC) branches

In 1973, the Government required the Bank of Ceylon to open 438 new mini-branches in the Agricultural Service Centres that were being opened by the Government to service the farming community. The Bank of Ceylon successfully met this challenge administratively, physically setting up these mini-branches in rapid succession.

The unexpected fruit that this excursion into the rural banking sector by Bank of Ceylon was a real transformation of the Bank’s personality from being elitist to a more sober people’s friendly attitude, and the realization of its obligation towards national and social development.

Almost simultaneously, the Administration of the Bank was decentralized with Regional Managers appointed islandwide. This process was further expanded in 1980, when Zonal Offices were established each under an Assistant General Manager.

The Bank reached a peak in its Branch network in 1988, with nearly 700 fully-fledged branches operating in the island.

Disbursement of credit

The disbursement of credit by the two banks cover a wide spectrum of the economy, the depth and range varying under the classification of short term, medium and long term credit. Bank of Ceylon had 61 subsidized credit lines in the 1990s and the People’s Bank had similar schemes through which millions of Rupees were being pumped into various selected sectors of the economy.

These massive injections of money into especially the lower strata of society for nearly 50 years now have raised the living standards of large sections of the population and made economic activities at the lower levels viable and sustainable.

The right to have access to credit, in modern economics, has become a human right and the Bank of Ceylon and People’s Bank have ensured that right without discrimination to all People’s of Sri Lanka, irrespective of class, race or religion. Access to credit on reasonable terms was the objective for which these banks were instituted historically and they have fulfilled that objective, much more than what was envisaged at their beginnings.

It is not out of context to comment on the spectacular success of micro-financing at grass roots level of the Grameen Bank of Bangladesh, which of course operates on a different scale and level. Its originator, former Professor of Economics in Chittagong University in Southern Bangladesh, Muhammad Yunus, won the Nobel Peace Prize, and the Indira Ghandi Prize for Peace for his pioneering and unique system of credit delivery to the poor, which has received universal accolades and acceptance. Bank of Ceylon and People’s Bank together contribute to the same philosophy of empowering the poor propelling them towards sustainable and viable economic activity, albeit at a different level, while equally maintaining competitive levels in highly sophisticated modes of national and international banking.

From the beginnings, Bank of Ceylon developed its expertise in financing of foreign trade and related exchange transactions and it now possesses wide and expert knowledge in the filed. It is also the main source of profits of the Bank.

Liberalization of the economy and its effects

In 1977, the so-called ‘Open Economy’ was ushered in. It opened the floodgates and 28 foreign banks had invaded the banking arena by 1982, while 4 indigenous banks were permitted to open branches in outstations.

The foreign banks selected their clientele, functioned from modern comfortable premises; their computerized new technological systems attracted major corporate customers.

The competition became acute as large slices of the market share hitherto held by the State banks were being eaten up by the collective effort of the new-comers to the industry.

Bank of Ceylon meets the challenge

The Bank of Ceylon had to take strong and definite steps to defend itself to meet this ‘unequal’ competition. In the public sector, with its weak managerial talents and colonial administrative structures, facing up to this type of competition was generally unimaginable at the outset. But, the Management of the Bank of Ceylon stood up to face the litmus test of its capability. Some of the major steps taken by the Bank during this period were,

(a) Computerization of the Accounting System in all Branches.

(b) Modernization of premises with attractive interior decor and air-conditioning.

(c) Large scale re-organization of systems and procedures with the help of foreign management experts.

(d) Diversifying its business activities to new areas with leasing, pawning, credit cards, share market and treasury operations, Unit Trusts etc.

(e) The Bank had a massive drive for specialized staff training and re-orientation programs to change staff attitudes to meet the competitive environment, emphasizing on excellence of service, and delighting of customers, changing dress code for smarter personal appearance in service areas, increase in productivity and corporate image building.

To implement the above, it called for a massive commitment and dedication by the Management and by all sections of other staff members. The staff response was both enthusiastic and stimulating.

The result of all this was that the Bank of Ceylon not only survived but overcame the competition. The range of services and products provided by the Bank now, are not second to any provided by the multi-national competitors. The Bank of Ceylon is now on an equal footing with the multi-national banks operating in the country.

Threats of privatization

In 1990, the State Minister for Finance, Harold Herat told Parliament that the Government was considering the sale of shares of the Bank of Ceylon to the public. In 1999, President Chandrika Bandaranaike told bank employees at an opening ceremony of the banking complex at Kandy, “We will not privatize the BoC, we will only sell a few shares to the public.”

The attempts to privatize the Bank of Ceylon and People’s Bank persisted thus, for about 13 years, on pressures exerted by the World Bank and the International Monetary Fund. The collective effort of employees of both Banks by agitation against privatization, successfully thwarted the efforts to privatize the two Banks.

Human resource development

The Bank of Ceylon recognized the importance of Human Resources Development in the 1990s and it became a priority item on its agenda, to maintain the position of the Bank as the leading bank in the country. The Bank had a peak staff strength of 11,000 employees in 1993, and presently has about 8,500 permanent employees serving in 306 branches spread throughout the country.

In 1982, the Bank established a fully-equipped Central Training Institute at Maharagama, with residential facilities, which marks a milestone in its historical development. Through numerous training programs, seminars and lectures which cover all grades of employees, the job-knowledge, working skills and positive attitudes have been nurtured and activated to meet the business requirements of the Bank. A wide range of identified priority areas such as Financial Analysis, Credit Skills Development, Debt Recovery,

International Banking, Computer Technology, Management Development are dealt with and knowledge and skills of the employees have been upgraded continuously.

The Bank nominates selected employees for foreign training in recognized training centres abroad. Selected employees are also nominated to follow courses in the National Institute of Business Management (NIBM) and other recognized professional bodies which conduct training courses for development of specialized skills.

The Bank also provides substantial incentive payments for those who study and acquire professional qualifications in banking and accelerated promotions are also offered to such employees.

This fertile background to grow has also had its negative effects in that young skilled employees who have ambition, have left the bank in hundreds to join other competing banks and financial institutions for better remuneration and status. This brain drain has not deterred the Bank of Ceylon and it continues, like a factory, to produce skilled bankers.

It is a grain of sand that irritates the oyster to produce a pearl. This constant irritation of exodus of trained personnel has spurred the Bank to produce many a pearl that have ultimately adorned the financial sector in Sri Lanka.

C. Loganathan, Wilmar Solomons, Rienzie Wijetilleke, P.R. Balaratnarajah, Mangala Boyagoda and later Rohini Nanayakkara, Sarath de Silva, K. Kathiravelupillai, S. Sivagananathan, N.B.S.B. Ballalle, S. Nadarajah are some of the pearls the Bank has produced. Lesser gems are too numerous to mention and they add lustre to banking and financial institutions they now serve.

Industrial relations in the Bank

There are six trade unions operating in the Bank of Ceylon and they interact with the Management mainly in four areas of staff management, remunerations, promotions, disciplinary actions and transfers.

The Staff Management processes are conducted through three mechanisms which are in place, relating to transfer policies, promotion schemes and disciplinary procedures, which are well - defined and regulated. For example, staff transfers are decided by Transfer Boards, Central and Regional, and the Unions have representations in those Boards. All promotion schemes are decided in consultation with Unions. In disciplinary matters, Union Representatives are permitted at two decision-making levels to freely defend the interests of their members.

The remuneration package of bank employees are decided through Collective Bargaining processes and Collective Agreements are entered into for periods of 3 years. At present bank employees in the lower grades are the highest paid among similar categories in the public sector.

These processes have to a large extent eliminated staff grievances and has created an atmosphere within the Bank that is conducive towards growth of talent, in a fair and equitable manner.

Harmonious Labour - management relations become possible only if the staff is contented with how they are treated. The essential pre-requisite for the smooth and efficient functioning of the Bank is a contented staff. The progressive attitude of the management to maintain a high - trust relationship with the trade unions is also a major factor which has contributed to the efficiency, growth and development of the Bank of Ceylon.

This article is written to celebrate seven decades of existence of the Bank of Ceylon. Therefore it would be quite out of place to mention any current negative factors that impede the progress of the Bank, which are also numerous. This has to be amplified on a different occasion, in a different context.

But despite such negative tendencies, the Bank of Ceylon maintains its position as the No. 1 Bank in Sri Lanka. From a total asset base of Rs. 7.8 million and a capital account of Rs. 10 million in 1939, the sweat and tears of the past employees of the Bank have produced an edifice of assets now valued at Rs. 484 billion and a capital account of Rs. 23,000 million. The profit figure for the year 2008 is Rs. 5.2 billion. The Bank has 7.5 million accounts of customers. This is a stupendous achievement.

This piece of history of the Bank of Ceylon and its growth is dedicated to the memory of three generations of employees, who made great sacrifices to establish and develop the Bank. These men and women who toiled, into the far night, shedding tears and sweat, under uncongenial working conditions and low wages, are now “old and grey and full of sleep and nodding by the fire”. Some are dead.

The present generation of Bank of Ceylon employees have received a great legacy of working for a prestigious institution which is the foremost bank in Sri Lanka. Every benefit and privilege that they now enjoy, are the fruits of selfless sacrifices and effort, the past employees have made to build the Bank of Ceylon, brick by brick to reach the skies.

Gratefulness is one of the finest of emotions of enlightened and noble human beings. On this day, when the Bank of Ceylon celebrates its 70th Birth Anniversary, we pay homage to all its past employees and felicitate and exhort the present employees to carry the torch forward and maintain the Bank of Ceylon as the Pride of Our Nation.

The writer worked in the Bank of Ceylon for 40 years. He was also a General Secretary of the Ceylon Bank Employees’ Union