CB to take regulatory action against ETI Finance and Swarnamahal

CBSL Governor Dr. Indrajit Coomaraswamy Picture by Saliya Rupasinghe

The Central Bank of Sri Lanka yesterday decided to take regulatory action against ETI Finance Ltd and Swarnamahal Financial Services PLC due to weak financial performances, CBSL Governor Dr. Indrajit Coomaraswamy yesterday said.

Accordingly the CBSL has imposed several directions on the business of these companies and on their Board of Directors.

Governor Dr. Coomaraswamy expressed his confidence that the regulatory actions along with a potential local incorporate company to take several of the company subsidiary companies will turn the tide for these two bodies, which have been struggling in the business for several years.

He reassured the market and the depositors in ETI Finance and Swarnamahal that while there is a problem, it can be overcome. “This is not a case of insolvency but a matter of illiquidity, he also pointed out.

Governor Coomaraswamy while observing that the depositors’ concern over the situation said that there is no need to panic about the situation.

He said that there will be no curtailment of interests and the interest payments will continue to be paid.

He said there will be several restrictions on placing some restrictions of capital repayments. “There cannot be early redemption. In addition on maturity, the deposits are going to be rolled over for a period of six months.

The company gets about an inflow about RS. 1 billion and if we can curtail outflows for about few months, we can very quickly build up the liquidity and restore normalcy,” the Central Bank Governor further said.

In consequent to the regulatory action, the Monetary Board has appointed a panel of three which will take over these companies which will run the business until the companies are stabilized. The panel includes retired CBSL Assistant Governor Sepala Ratnayake, the retired Deputy General Manager of the Bank of Ceylon C.A. Lionel and H.N. Tilakaratne, the former Assistant General Manager of the same bank.

“Term of reference to this panel will be to revive these companies. There is already a business plan put forward by the existing directors. The panel will basically run the company and it will be responsible to make sure the CBSL directions given to the company will be properly applied,” Governor Coomaraswamy explained.

Governor Coomaraswamy also said that in order to make sure the enforcement of the directions given to the company by the CBSL, six central bankers from the Non-Banking Financial Department are currently posted to the two finance companies. The said Central Bankers will be onsite for several weeks until the situation is stabilised.

Speaking on the Monetary Board directions on constraining the business of the said companies, Governor Coomaraswamy explained that “They are restricted from disperse any loans, Credit facilities any other type of financial accommodations except with the prior written approval of the CBSL Non-Banking department or the management panel appointed to overlook the business affairs of this company by the CBSL.”

“They cannot invest any money in anything other than government securities and fix deposits, nor can they enter into any businesses other than financial services. Nor can they have any transaction with their holding company or its subsidiary companies.” Governor Coomaraswamy said.

“The only power the board of this company has to act as a liaison on matters related to depositors. They should also ensure effective recovery from the present financial Situation and look for potential investors.” he added.

The ETI finance and Swarnamahal accounts for about 0.03% within the total assets of the banking and services sector, it was also pointed out.

Thus, Governor Coomaraswamy said that the systemic importance of the matter is less than negligible.

Asked how confidence the CBSL is about the stabilization of the two companies, Governor Coomaraswamy said the direct interference of the Central Bank in the matter will assure a positive outcome. He also pointed out that there were drastic mismanagement recorded by these two companies and negligence shown on CBSL directions to them as well. 

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