The Sunday TimesBusiness

12th January 1997



New rural bank on the card

By Ruwanthi Ratnayake

A proposal has been put forward by government to set up new Regional Development Banks (RDB) in each province to take over and diversify the tasks of the present Regional Rural Development Banks.

According to Central Bank Executive Director, M. Nagahawatte, at present, there are 17 RRDB's with 173 branches islandwide. These institutions were mainly established to provide credit to the rural population and to develop rural areas. They were looked upon by rural people as institutions that would provide concessionary finance to the poor, by way of providing finance for agriculture, cottage and small-scale industries, fishing, commerce and other such activities in rural areas. However, serving exclusively the weaker sector of the economy, the RRDBs found it difficult to attract sufficient deposits, and the RRDBs did not mobilise adequate funds for lending activities. Hence, these institutions depended largely on re-financing from the Central Bank.

The Central Bank in its Annual Report for 1996 states that "the termination of the Central Bank's re-finance scheme restricted the resource poor RRDBs in their lending to the agriculture sector".

However, in the case of the new RDBs, Mr. Nagahawatte states, that the scope of activity will be broader. These institutions will not only provide credit facilities to the poor as in the case of RRDBs but also engage in infrastructure development, entrepreneur development and the introduction of technology to their respective regions. They will also participate, in association with provincial councils and other local authorities, in development activities in the areas of their operations.

According to an observation made by the Presidential Commission on Finance and Banking the RRDBs have performed a useful role in the provision of credit to persons who would not have been served by the existing financial institutions. The Commission has also pointed out that some of the RRDBs have made losses. However, according to Mr. Nagahawatte, it is only a few that have made losses.

In these circumstances, the role of the new banks will be greater in scope. They have an authorised Capital of Rs. 500 mn and will have sufficient resources for their lending and other activities. The RRDBs, however, by statute had a limited capital of Rs. 50mn, thereby, making their resource poor, he said. "The RDBs are expected to work with the objective of improving the overall economic development of the region in which they operate", he said.

According to him there have been requests from various sectors (i.e. fisheries, agriculture etc.) to set up separate banks to develop these different sectors, but the government's idea has been to set up a single institution which would cater to all the sectors. "When an RDB is established for a particular region, the legalisation will provide for the business of the RRDBs in that region to be vested in the RDB", he said.

Under the RRDB Act, the Central Bank was authorised to divest 49 per cent of its shares in an RRDB to co-operative societies and specified commercial banks (The maximum shareholding held by the co-operative societies in the aggregate is limited to 10 per cent of the issued capital of an RRDB). In the case of the RDBs, the authorised capital will be Rs. 500 mn as mentioned earlier and the initial contribution will be made by the Bank of Ceylon, People's Bank, Employees Provident Fund and the National Savings Bank. The amounts contributed are specified and will not exceed Rs. 12.5 mn each.

"The Central Bank will make an assessment of the initial capital requirement and contribute the balance initial requirement", Mr. Nagahawatte said. According to him, the Central Bank's contribution would be the transfer of the networth of the RRDBs to the RDBs. The shareholders could transfer the shares at any given time. The Board of Directors of an RDB would allot shares to banks and others.

The Board of Directors will include a representative each from Bank of Ceylon, People's Bank, National Savings Bank and Central Bank, while another would be appointed on his experience in the areas of business and finance.

"From our monitoring of the financial performance of the RRDBs, we feel that an institution that will be working on commercial lines will be feasible", Mr. Nagahawatte said. According to him, RDBs would not normally be involved in concessionary credit. The problem is not that the people want cheaper credit, but additional credit which is timely and at reasonable market rates, he said.

Sarong makers stripped

Smuggling affects local industry, say manufacturers

Local sarong producers have complained that they are under threat from low quality imports brought into the country illegally.

More than 30,000 handloom sarong producers in Kalmunai are facing marketing difficulties due to cheap Indian sarongs flooding the market, representative of Marathamune sarong producers, S.Z.M. Mazoor Maulana told Industries Minister C.V. Gooneratne when a delegation from the Eastern Province headed by Deputy Posts Minister M.L.A.M. Hisbullah met the Minister recently.

Mr. Mazoor said the short-term duty rebate granted for handloom yarn has not had the expected benefits.

Expressing his views regarding the high cost of handloom yarn, the Minister said that action has been taken already to extend the duty rebate on yarn by a further period of three months viz. up to 31.03.97 and he gave an undertaking to the representatives that action would be taken to grant the duty rebate for a long period in the future, without fixing a specific date and that necessary steps will be taken to restrict to the minimum the flooding of handloom textiles to the country through illegal means by discussing with the relevant authorities.

The Minister said that the government has not only a special regard and interest in the handloom textile industry, but also the responsibility of protecting and developing the industry and extending the maximum co-operation to the handloom textile industry. He added that the Ministry had already drawn up a plan to uplift the handloom textile industry of Sri Lanka under a National Plan encompassing the entire handloom field.

Radley steers Seylan Bank

Seylan Bank was established during the height of the insurgency in 1988, when many sceptics were wary of entrepreneurship. Today it counts over 8 years in operation with 90 branches islandwide.

Radley Silva, the newly appointed General Manager of Seylan Bank counts more than 37 years in the banking sector and has been with Seylan Bank since its inception. In an interview with The Sunday Times Business, Mr. Silva said his priority was to "consolidate and stabilize the bank at the right places at the right time".

On bank expansions he said, "we hope to open around 10 branches mainly in the outstations within the next two years."

With the revising of the Banking Act in 1994, provisions were made for the establishment of savings banks. Commenting on this, Mr. Silva ironically stated that he was "looking forward to healthy competition with the new savings banks."

Seylan bank which is well represented in the outstations is perfectly poised to handle the competition of the new savings banks as they would also be mainly concentrating their efforts in the outstations, Mr. Silva said.

The escalation of the North-eastern conflict and the power crisis in the recent past had put undue pressure on the corporate sector resulting in bad debts to commercial banks.

Mr. Silva while claiming that the Seylan Bank's bad debt situation was under control revealed that the bank hoped to write-off the bad debts within the year with a few provisions. He said it would take place in accordance with the guidelines laid down by the Central Bank and also admitted that it would affect the balance sheet at the year in question.

Seylan Bank's fast growing domestic network had meant that of late they have had to recruit professionals to the senior management cadre to stabilize their position in the banking sector. Mr. Silva said new products were in the pipelines but declined to provide details.

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