Move to enhance depositors’ confidence :
Mandatory deposit insurance scheme will have positive impact
Central Bank Governor Ajith Nivard Cabraal said that a mandatory
deposit insurance scheme should be set up, as it will have a positive
impact on the industry. This would enhance depositors’ confidence and it
would be a self-corrective mechanism where companies would not have to
take it as a burden. The mandatory deposit insurance scheme will also
help to strengthen the financial system.
Ajith Nivard Cabraal
He was speaking at a seminar on “Statutory and Regulatory
Requirements for Registered Finance Companies and Specialized Leasing
Companies” at the Galadari Hotel yesterday.
RFCs and SLCs
* Sharp improvement in RFCs assets and
* Need to continue growing impetus
* Much scope for RFCs and SLCs in SME
The Governor said during the past six years the assets and liquidity
of Registered Financial Companies (RFC) had improved sharply.
The RFC assets grew from Rs.140.7 billion to Rs.175.6 billion in 2008
and the liquid assets (available amount) recorded a growth of Rs.18.1
billion compared to Rs.13.9 billion in 2007. There was a decline in the
RFC capital adequacy and profitability.
Though the end of 2008 was disappointing the Specialized Leasing
Companies (SLCs) recorded an improvement in assets, capital and
borrowings while there was a decline in profitability.
The SLC assets increased from Rs.95.54 billion to Rs.109.92 billion
in 2008 and borrowings grew from Rs.66.96 billion in 2007 to Rs.77.09
billion in 2008. The SLC total capital funds increased from 16 percent
to 18.54 percent in 2008, he said.
Cabraal said there was a similar performance in RFC and SLC
industries and considering these figures we need to improve productivity
in these areas, as we need to continue the growing impetus. Several
weaknesses have also been noticed in RFCs and SLCs for which a mechanism
was developed to counter weak corporate governance practices, weak
internal controls, inadequate capital, lack of contingency liquidity
planning and weakness in risk management.
None of the employees could rely only on the company’s chief as each
employee has his or her own responsibility and the entire group should
be responsible for the company’s faults.
As the regulatory bodies of all financing companies in the country,
the Central Bank accesses all operations under all circumstances since
we have a proper plan. We need to improve further since, there are
several challenges remaining such as maturity mismatches of assets and
liabilities, lack of contingency arrangements to ensure business
continuity, comparatively high cost of funds, highly concentrated and
limited business operations and insufficient professionals in
management, he said.
He said there is much scope for RFCs and SLCs in the SME sectors. All
RFCs and SLCs must endeavour to have at least one dedicated
centre/division/window to cater to the needs of SMEs.
By allocating a specified amount for credit to SMEs and building
capacity to impart skills and advice, the RFCs and SLCs could support
the SME sector.
The financial industry should approach the market by innovative
products. A few alternative mechanisms to enhance resources and develop
new and more stable funding lines have been advocated for innovative
products, which the industry needs to adopt.
Implementing effective collection procedures and delivering credit on
time is another factor, which the RFCs and SLCc should maintain, Cabraal
The RFC and SLC industries should improve their corporate governance
while observing the corporate governance of others since a collapse of a
company would affect the whole industry.
Improving productivity, taking responsibility, as directors and risk
management are some of the vital areas that the industry should
consider, he said.
Prosperity will not occur automatically. It can be achieved only with
high commitment, intense dedication, careful planning and effective
implementation. Therefore, this is the time for all of us to build our
nation and to stabilize our country’s economy, the Governor said.