Banking Act of 1988 – Part VI
This refers to disqualification for appointment as director, secretary of licensed commercial banks:
42. (1) No person shall be appointed, elected or nominated as a director of a licensed commercial bank or continue as a director of such bank unless that person is a fit and proper person to hold office as a director of such bank and if he is not prevented from doing so by any provision of this Act or of any other written law.
(2) In determining whether a person would, for the purposes of sub- section( 1) be considered to be a fit and proper person, the following matters shall be taken into consideration:—
( a) that such person possesses academic or professional qualifications or effective experience in banking, finance, business or administration or of any other relevant discipline;
(b) that there is no finding of any regulatory or supervisory authority, professional association, any Commission of Inquiry, tribunal or other body established by law in Sri Lanka or abroad, to the effect that such person has committed or has been connected with the commission of, any act which involves fraud, deceit, dishonesty or any other improper conduct;
(c) that such person is not subject to an investigation or inquiry consequent upon being served with notice of a charge involving fraud, deceit, dishonesty or other similar criminal activity, by any regulatory authority, superviso- ments expressed by economists of the calibre of retired central bankers like Nimal Sanderatne, W.A. Wijewardene and Sirimavan Colombage.
Monetary Board admits
However, last week’s acknowledgement by the Monetary Board (after being silent for so long on bond issues) that there may have been a lack of good practices in the conduct of money market auctions, is perceived by the public as an admission of guilt that something appeared to be amiss earlier. “It was a ‘better late than never’ statement,” said one economist.
Now Mr. Mahendran’s term of office ends on June 30 and the President has to decide on the next appointment. President’s consideration In this act, the President needs to ask himself, among other matters: Is there public confidence in the Governor?Have his actions over the past 15 months brought disrepute to the position and the institution?Is he an exemplary officer, of good conduct?What bearing would his (President’s) public call for Mr. Mahendran to resign (soon after the February 2015 bond fiasco) have on the impending decision?
In the absence of guidelines that other jurisdictions have (as pointed out earlier), the President and the PM need to dig deep into their conscience, amidst growing public anger, in taking a decision on the appointment of the Governor.
As stated earlier, present rules relating to appointments and dismissals are irrational. The Monetary Board can sack a director of a bank for misconduct while its own actions (members of the board) cannot be challenged by the appointing authority if there are serious allegations.
Furthermore, a director of a bank can be dismissed at any time, while the Governor cannot be easily dismissed for misconduct or any other offence (see box) as the law stands. The holder of this office can choose to resign or stay on till full completion of the six-year term of office. The law states that “a person shall be disqualified for appointment as the Governor of the Central Bank if ...” .
In the meantime, there hasn’t been any impartial investigation into allegations surrounding the February 2015 bond issue. While a committee of UNPaffiliated lawyers issued a tame report (in fairness to them, their mandate was limited), a petition to the Supreme Court seeking leave to proceed was dismissed, a move which the Governor says has cleared him.
That is not correct. The Court refused ‘leave’ on the grounds that the petitioners failed to prove that their fundamental rights had been violated by the bond issue and related matters. It was not a case of exonerating the Governor.
Thus an impartial investigation needs to be held by the Commission to Investigate Allegations of Bribery or Corruption where a complaint has been filed and also the Committee on Public Enterprises (COPE) which was recently told the shocking news that the Auditor General had been refused access to CB documents pertaining to bond transactions.
Still not in the clear
The Governor is still not in the clear. Only a proper examination of the bond issues and related matters by an independent tribunal (in this case COPE) can ry authority, professional association, Commission of Inquiry, tribunal or other body established by law, in Sri Lanka or abroad;
(d) that such person has not been convicted by any Court in Sri Lanka or abroad in respect of a crime committed in connection with financial management or of any offence involving moral turpitude;
(e) that such person is not an undischarged insolvent nor has he been declared bankrupt in Sri Lanka or abroad;
(f) that such person has not failed, to satisfy any judgement or order of any court whether in Sri Lanka or abroad, or to repay a debt;
( g) that such person has not been declared by a court of competent jurisdiction in Sri Lanka or abroad, to be of unsound mind;
( h) that such person has not been removed or suspended by an order of a regulatory or supervisory authority from serving as a director, Chief Executive Officer or other officer in any bank or financial institution or corporate body, in Sri Lanka or abroad;
( i) that such person has not been a director, Chief Executive Officer or held any other position of authority in any bank or financial institution —
i. whose license has been suspended or cancelled;or
ii. which has been wound up or is being wound up, or which is being compulsorily liquidated, whether in Sri Lanka or abroad. clear the air. Until then, the Governor lives under a cloud of suspicion, and as long as his son-in-law’s family firm is involved in the money markets, uncertainty and suspicion will continue to trail him.
Those who argue that the Governor of the Central Bank is not a public figure and unnecessary fuss has been made over various aspects of his ‘lifestyle’, need to read the section (below) on the website of the Reserve Bank of India (RBI). It says:
“Few personalities are so close yet so distant to India's populace as the Governor of the Reserve Bank and few evocative of his awe and mystique. Close, because virtually every individual, be he ever so poor or so rich, carries on his person the promise and signature of the Governor. Distant, because central bankers are traditionally conservative and publicity shy. Awe, they command as the custodian of the country's reserves and defenders of the external value of the currency. And, mystique they possess as purveyors of money, the commodity all desire but so few understand.”
It further said: “Behind the mist, and shorn of the public perception, the personality of the Governor assumes importance in a specific context, the Governor, more than any public or private functionary in the country, has the mandate of securing the monetary stability of the country. This impinges on the day to day life of ordinary citizens.”
The Right to Information Act also covers the RBI providing citizens of India access to information under the control of public authorities to promote transparency and accountability in these organisations.
More transparency needed
That kind of transparency is needed at the CB and today, even more so under the government’s own principles of good governance, as the Governor and the decisions he makes impact on the lives of every Sri Lankan.
The President now has to decide on the re-appointment or appointment of a new individual to the post, a decision that would have a significant bearing on the lives of everyone, given that divisions in the government have emerged with SLFP Ministers publicly demanding the Governor’s removal.
A huge responsibility is cast on the President – a mere stroke of a pen, a signature -- as it may seem, but an act that must be exercised with great care, caution and dignity, and on his part also heeding the advice of the Prime Minister, who wants Mr. Mahendran to continue.
Napoléon Bonaparte once said: “The world suffers a lot. Not because of the violence of bad people. But because of the silence of the good people.”
The President and all organs of government are repositories of trust placed in good faith by the people. They must not let down that trust and good faith, whatever the odds.
It is not all dark clouds for the government. If not for the President and the PM the freedom to criticise and hold leaders including the President and the PM accountable, would be missing. In that, there is some comfort and hope that the right decision would be made in the affairs at the Central Bank.