Depositors’ woes continue at failed finance companies
With regard to the failed finance companies ( FCs), the Central Bank ( CB) appears to have proved that throughout it has neglected its responsibility of ‘monitoring and supervising’ the finance companies as the very purpose of having a separate unit to monitor and supervise is to prevent these finance companies from failing.
Instead of fulfilling their responsibility, the CB is now reduced to issuing media statements and circulars which are sometimes inconsistent and contrary to one another leading to losing confidence on this premier financial regulator by Sri Lankans as well as foreigners, aggrieved depositors say.
To prevent FCs failing and safeguard them, a special unit – Department of Supervision of Non- Bank Financial Institutions of the CB but their non- action is reflected in several FCs failing and no resolution of issues in sight.
The latest circular – Circular No. 1 of 2018 – issued by the Resolutions and Enforcement Department of the CB to the CEOs of all member institutions of Sri Lanka Deposit Insurance and Liquidity Support Scheme states that the definition of depositors has been widened to include the value of shares of shareholders who were initially deposit holders.
Members of the scheme are required to include all the details for the purpose of calculation of premium and send those data effective from January 1, 2018.
Depositors fear that some of these failed companies would be liquidated and all the depositors to be paid at the rate of Rs. 600,000 irrespective of deposits above this limit. It is apparent that the liquidation is prevented since these failed FCs have gone for litigation against the violation of the rights of the depositors.
Depositors associations of these failed finance companies that are earmarked to be liquidated are objecting to the CB claim of paying only Rs. 600,000 to all the depositors as they indicate that all their members are equal and any decision to pay back the deposits has to be fair and reasonable and their full amounts to be paid according to the CB’s own media release on 16/10/2016.
A depositor pointed out that it is unfair to pay only Rs. 600,000 for a depositor who may have deposited Rs. 15 to 20 million.
Some depositors complain that non-settlement of these issues pertaining to failed FCs leads to further wastage of funds as large funds have to be utilised to maintain them. A depositor of Standard Credit Ltd said that they are forced to pay Rs. 3 to 5 million a month for the upkeep of nearly 30 employees of this defunct company.
This depositor has asked the CEO of Standard Credit to ‘take immediate action’ to correct this sorry state of affairs and ensure the safety of all documents at the company as they intend to request President Maithreepala Sirisena to appoint a Presidential Commission of Inquiry to investigate the massive frauds that has taken place in collapsed CB- registered finance companies in the past.
He also indicated that they believe that it was during the tenure of the present CFO of Standard Credit that the Treasury Bills to the value of Rs. 2.5 billion vanished from Standard Credit.
Though it is the responsibility of the CB to find investors to resurrect these failed FCs, in several cases the depositors themselves have attempted to bring in investors.
W. Gunawardene, President, Central Investment and Finance Ltd Depositors’ Association (CIFLDA) pointed out that it is very unfair by the CB that it has supported the failed FC - ETI (Swarnavahini) and promoted two investors, one local and the other foreign and also granted some concessions to ETI.
He said that depositors associations of some of these failed FCs tried to bring in investors to restore their failed companies, but it is apparent that with the CB imposing various terms and conditions on these prospective investors, progress is slow.
He said that they have been finding investors to resurrect their failed FCs, but due to the CB imposing several terms and conditions the investors’ response has slowed down. When the CB threatened CIFL by issuing notice of Cancellation of Business Finance Licence, these investors panicked.
He said that collectively they have been struggling to get relief for their members for the last 4 ½ years, but it appears that a favourable result is bleak.