By Rusiripala Tennakoon –

Rusiripala Tennakoon

There is wide spread speculation and surmise about a proposed re-constitution of the Boards of  major State Banks and the Board of Investment of Sri Lanka. The issue is rotating round the question as to who has authority to remove the Directors. According to reports the Directors are taking up the position that they have been appointed by the subject Minister and any change also should follow the same protocol order.

This appears to be a true replication of what has been going on in the country for some time now. People in high positions try to emulate those above them.  Ministers when implicated with well-established attributions were allowed to continue interminably. Officials who were charged with serious allegations were permitted to continue performing their duties without having to face any disciplinary actions. CBSL Bond Scam related issues centered round the Ex-Governor Mahendran was the most glaring. Now the Directors of Boards of State Bodies seem to trail the precedence so created.

The reality, however, is different. According to the Laws of Incorporation of the BOC and PB, appointment, conditions applicable and the responsibilities of the Boards of Directors of the State Banks are clearly stipulated in the respective Acts and the Ordinances. Section 8 of the Peoples Bank Act {No. 29 of 1961, as amended} states as follows:

• Bank will be controlled and administered by a Board of Directors of 10 members appointed by the Minister, two of whom shall be the nominees by the Minister in charge of the subject of co-operatives.
• Any Director may resign from office by letter in that behalf addressed to the Minister.
• The Minister may, by order published in the Gazette, remove a Director from office without assigning a reason and such removal shall not be called in question in any court.

According to the BOC Ordinance subsequently amended from time to time the relevant position is as follows:

• Management and administration of the affairs of the bank shall be vested in a board, consisting of 6 Directors appointed by the Minister.
• One of them shall be appointed by the Ministry of Finance.
• An appointed Director may resign his office by letter to the Minister.
• The Minister may, if he thinks it expedient to do so, remove an appointed Director from office.
• Every appointed director shall hold office for a period of 3years unless he is removed earlier

According to the Constitution of the country, Under the Chapter dealing with the Executive, the President of the Republic is described as follows;

• “President of the country is the Head of the State, Head of the Executive and of the Government…………”
• The President shall be a member of the Cabinet of Ministers and shall be the Head of the Cabinet of Ministers;
• It is the President who has the power to appoint the Prime Minister;
• President has the power to determine the number of Ministers  and the Ministries and the assignment of subjects and functions of such Ministers;
• The President is empowered to change the assignment of subjects and functions and the composition of the Cabinet of Ministers at any time;

Therefore, when the Head of the State who is also responsible for the appointment of the Cabinet of Ministers indicates his desire to effect a change in Public Interest on any matter related to the subjects coming under the purview of Ministers, should there be any confusion regarding the authenticity of such a direction?

In more simple terms there is nothing more for a Minister to do in such a situation of a directive by the President, other than to use his ministerial powers as vested in the Acts and Ordinances and give effect accordingly, unless the Minister concerned decides to override the decision of the President.

On the other hand, should, the Directors of the Boards who are there due to appointments made by a Minister of a Government exercise an option to remain in their positions when they are aware of a directive by the Head of the Government to remove them? More than the legal position they have a moral and ethical obligation to respect the views of the Head of the State.  Ironically, they are attempting to cling on to positions bestowed upon them purely on political considerations, indefinitely, even disregarding their over-stay of periods stipulated in the Acts and Ordinances for holding such office. Is it due to any fear of any possible future reprimands based on  breaches and failures in their  performances that they are trying to resort to continue and cling on?

It is an accepted fact that the BOI has failed to fulfill its objectives. Our foreign investment portfolio remains far below the expectations after many years of BOI administrations. Even the projected picture is not reassuring. Country has already wasted much time. The founders of the BOI not only did lay down the operative rules and regulations but practically demonstrated how the BOI can lever the economy. Nevertheless we have failed to extend friendly hands to the willing investor entrepreneurs. Many have been turned away not only with bitter experiences but with inglorious images about our country. Although it is too late now, it is better late than never. The BOI has to be saved from the imposters and swindlers.

The position with regard to the State Banks is no better. The President seems to have forgotten to include the National Savings Bank among the other two already named. NSB too had undergone molestation and rape under the current administration. We recall the role it had played or was subject to during the CBSL Bond Scam. Chosen culprits were transferred to NSB fund investment area by the fugitive turned Ex-Governor Mahendran. They are now charge sheeted under the Laws. Investments were manipulated through the NSB in favour of the Company, Perpetual Treasuries Ltd now facing court trials. Funds belonging to NSB have been invested in highly unethical and risky operations. The Chairperson is believed to be either a dual citizen or a foreign citizen.

Bank of Ceylon and Peoples Bank were seen to be made pawns in the CBSL BOND game. A sum of Rs.13.5 Billion was staked by the BOC on behalf of Perpetual Treasuries Ltd., the Company now facing trial. BOC went to the extent of requesting time extensions for the closing of the impugned bond issue in-order to tender offers on behalf of PTL Ltd. They secured bonds at a very low price on behalf of that company and parted with those shortly afterwards with extremely marginal markups to help PTL Ltd to make huge profits. The Bond Commission viewed the operation as exceptionally questionable. BOC has been instrumental in facilitating SOEs extensively in a un- businesslike manner disregarding the risk element to Public Money. Lending to Mihin Air, Sri Lankan and funding certain unethical investment plans now revealed at the ongoing Commission are some of the specific instances of irregularities they are responsible for.

Situation with regard to the Peoples Bank is even worse. Bank has totally failed to perform according to the specific objectives it is entrusted with. They have gradually withdrawn from the Co-operatives thus contributing to the degradation of the Country’s co-operative movement in a big way. A careful examination of the activities of the bank shows that the main source of income earning of the bank is confined to its’ lending operations directly to the Government and the financially strangulated SOEs. Bank has continued to be at the mercy of the Treasury for the maintenance of the liquidity levels in keeping with both CBSL and BASEL standards. Treasury has from time to time pumped in approximately more than  Rs.30 Billion towards this requirement. Bank has failed to achieve these norms by itself through prudent banking operations. This is a reflection of poor management skills and the wrong choice of persons to serve as its Chairmen and Board members. Some are facing serious charges of misappropriations amounting to huge sums. Peoples Bank has gone into history as the only State Owned Bank that took part in the Famous Hedging Scam and the elevation of those responsible for the deal to the highest positions in the Bank. Bank had to write off nearly Rs.5 Billion both in foreign exchange and local currency as losses incurred in the hedging operation. Most of these activities were conducted under a group of external consultants or experts recruited to the bank’s service as contractors for tenures of more than 15 years with extremely high payment packages. Currently the Bank is reported to be paying a salary of approximately Rs. 2.2 million per month to one such contract employee who has  passed his 60^th birthday! Several others in strategic positions as contract employees are given similar extraordinary pay packets, bonuses of incredible amounts with several other fringe benefits. Recently the Board of Directors have approved a loan scheme for the top ranking officials  for purchasing cars for individual use, Rs. 18 million  each at 6% interest and according to information that has not been verified the installment of these loans  too is paid by the Bank. A director of the Bank , who has been serving in the Board from the time of the previous regime has availed credit facilities exceeding Rs 10 Billions  for a company where he is the executive deputy chairman. Bank officials made a futile attempt to justify the lending but the ensuing events exposing the nearly sinking financials of this company proved to the Public that the stand taken by those who exposed the matter were not specious.

There were many instances during the tenure of the current chairman and Board of Directors where Public eye was focused on alleged transactions involving huge sums spent by the Bank wastefully and irrationally. These expenditures were exposed by the public media as corrupt deals. Bank lavishly spent tens of millions to advertise the innocence of the Bank. While it is accepted that depositor funds in  Public institutions should not be misused, Bank failed to sustain the Public Confidence in such instances. Several investigations had to be conducted at Ministerial level, COPE and Parliamentary level as required interventions to deal with the situation. The non- performing loan portfolio of the Bank has increased many fold indicating that even the limited lending activities outside the financing of the Government and the SOEs have been tarnished.

Under such a scenario no one could blame the President for intervening at this stage. Although the full responsibility falls on those who controlled the economy of the country the situation that the State banks have fallen into requires urgent course corrections for preventing an inevitable disastrous end if allowed to continue. Those who split hairs about the nitty-gritties of legality and other trivial matters should bear in mind that the intervention of the President became necessary due to the contributory negligence or oversight, blunders and failures of those who are responsible to control the affairs of the State Banks.

In conclusion we wish to point out that the dissolution of the Boards itself is not a solution. While replacing them with people of high integrity is a must, an investigation into the past affairs is more needed as a precautionary corrective step.