aim of making large profit? by finan­ BEGINNING AND 25 YEARS OF PROGRESS cing big industry". PEOPLE'S BANK BEGINNINGS AND 25 YEARS OF PROGRESS Clarence Fernando The Commission also noted that the Bank had not given any financial or other assistance to any approved Mr Clarence Fernando was a former Editor, Ceylon Daily News and Reuters Correspondent in Sri Lanka and for several decades has been a regular commentator on Sri Lankan events. society or cultivation committee during the period under review. In­ deed no society had been approved by The People's Bank, which began clusion (para 203) was "The People's formal order of the Minister to receive bi siness in unpretentious "hole-i--the Bank has carried out the intention of such assistance under the provisions of wall" offices in the Y.M.B.A. building the framers of the Act that the com­ the Act, nor had any assistance been and in Duke Street in Colombo's Fort mercial business of the Bankshouldbe rendered by the Bank to cultivation 25 years ago, can pat itself on its back used as a source for financing the committees, according to the evidence modestly on the giant strides it has co-operative sector". placed before the Commission by taken to become the largest and most officers of the Bank. influential bank in the Island handling However, the general conclusion over 60 percent of all Sri Lanka's the Commission reached on an overall "To that extent at least, it must be commercial bank customers including review of the position on its first term held that the Bank has failed to carry peasants, workers, industrialists,, pri­ of reference, that is the extent to out in full the purposes as set out in vate and public organisations, coope­ which the Bank has, during its first Section 4 of the Act, ie. to provide ratives and state corporations. four years, carried out or failed to financial and other assistance to co­ carry out the purposes for which it has operative societies so as to develop Today from its elegant 15-storeyed been established- was:"While the ex­ the co-operative movement in Ceylon; building on the banks of the Beira tent to which the purposes of the to extend rural facilities in rural areas, Lake in Sir Ch'ttampalam Gardiner People's Bank cannot be determined and, in particular, furnish financial and" Mawatha, which puts to shame some with any mathematical exactness, in other assistance to approved societies, of the high-rise monstrosities that are the first two years it is apparent that cultivation committees, and other mushrooming around it, the People's they were enthusiastically borne in persons engaged in, or intending to Bank takes its business to the people mind by the Board of Directors and engage in a small-scale agricultural, in all parts of the country through a the General Manager, but thereafter industrial or business undertaking in network of 300 bank branches, and in the process of expansion they such areas; and generally to promote over 900 branches of rural banks, the tended to be lost sight of, and the the economic development of rural largest network operated by £ny bank powers conferred on the Bank to areas". in the country. transact commercial banking business in order to carry out the purposes The People's Bank ' commenced Of course, the trek to the Bank's became the dominant objective rather operations in July 1961. It "'as Headquarters building-in Sir Chittam- than the purposes in themselves. A <>st9bl;shed under the People's Bank palam Gardiner Mawatha in 1977 runs more balanced view of the scope and Act No. 29 of 1961 by dissolving from the crowded offices in the powers of the Bank appears to be now assets and liabilities of the Co-opra- YMBA building and Duke Street prevalent". tive Federal Bank. through its offices in Rutnam's buil­ ding in Union Place from 1962 and the The Commission also made the Conception of the Bank G.C.S.U. building in Sir Chittampalam point that in the second Annual Re­ Befo'e '">ne goes further to talk Gardienr Mawatha from 1965. The port of the Directors for the year about the new bank, it behoves one to trek has been long and arduous for, in ending 30 September, 1963, it was ask why the Co-operative Federal the formative years, the Bank had to reported that small industries, Bank was liquidated. go through a scorching purgatory of especially those that were just begin­ Philip Gunawardena the MEP fire when it had to face a Public ning to find their feet, were given faci­ leader, who was Minister of Agricul­ Commission of Inquiry, appointed by lities, having in mind the role they had ture in the cabinet'of Prime Minister Governor-General, William Gopallawa to play in the economy. It will be Solomn Dias Bandaranaike, provides in 1965, on the working and adminis­ observed • that from the latter half of the answer to this question in the draft tration of the Bank in its first four 1963, this objective seems to have Co-operative Development Bank Bill, years. The Commissioner's first con­ been displaced by the more ambitious which he presented to the government

28. ECONOMIC REVIEW JUNE/JULY, 1986. in April, 1959. produce, -for consumption expenditure I would therefore wish to see that this Commenting on that draft Bill he between harvests or for any other bank is so reconstituted as to be an makes these points: purposes, he was compelled to place efficient institution not only to himself at the tender mercies of attract deposits but also to seve their "One of the first and most impor­ greedy landlords, boutique keepers credit requirements. If you agree that tant problems which engaged my and professional money lenders. the Co-operative banking system needs attention when I took charge of the re-vitalization, officials of the Central Ministry of Agriculture was the prob­ It also showed that unless the Bank can meet officials of your lem of rural credit. peasant could be released from the Ministry to draw up the constitution clutches of these exploiters, all for a new bank to take over the Co­ schemes for village uplift and all plans operative Federal Bank and the Co- It was clear to me that from the for agricultural development were poperative Provincial and District outset that oroHuctivity of village doomed to failure. Banks". agriculture could never be substan­ tially increased unless we provided The experience of Japan and India In October 1956 the officials of *he adequate credit facilities in the rural had shown that the credit needs of Central Bank and the Ministry jointly areas. No purpose was served by rural farmers could best be met prepared a Memorandun setting out advisina the villane farmer to apply through a strong and efficient co-ope­ the proposed constitution of the new more liberal doses of fertilizer or to rative credit movement to make it Co-operative Bank together with its purchase improved agricultural imple­

H both efficient and effective. objects, powers and functions and in ments if we o not a* th° same time October 1957 it was considered by the provide him with the means with Which to do it. The proposed new islandwide net­ Cabinet and unanimously approved. A work of multi-purpose co-operatives, point of much significance is that the one of which was eventually to be Central Bank, in this Memorandun ore- The Ministry carried out a number established in every village of the sented to the Cabinet, had strongly of studies on the rural credit problem. Island, would provide a firm "foun­ urged that the new Bank should be a Another study was the survey of Rural dation" for the new cooperative "mixed Bank", which would under­ Indebtedness carried out at the re­ credit structure.At its apex had to be take "not only purely cooperative quest of the Ministry of Agriculture a strong and efficient new Co-opera­ banking functions but also the more bv the Department of Census and tive Bank. profitable functions of a commercial Statistics: 1 bank". It is for the purpose of establishing This survey revealed: But it was from around this stane such a Bank that the Co-operative (1) That fully 54 percent of all that the draft proposals for the setting Development Bank Bill, placed before up of the new Co-operative Develop­ village families were in debt; the cabinet in 1959, had been drafted. (2) that the total debts of the rural ment Bank ran into stiff opposition ' from the Finance Ministry, Lands population amounted to over The Central Bank working quite Ministry, and by sections of the press. Rs 500 million. indepedently of the Ministry of Agri­ The survey also revealed the start­ culture had come to this same con­ The Finance M:ni«ter took up the ling fact that of this debt only 2.6 per­ clusion, namely that the existing co­ position that the provision of credit cent was due to the aovernment anH operative credit organs in Ceylon were was his function and not the function 3,9 percent to the co-operative socie­ inefficient and inadequate and that of the Ministry of Agriculture, that the ties sponsored by the government. they should be completely reconsti­ establishment of a Co-operative De­ The remaining Heb+s were due to tuted. In fact on 29 May, 1956, the velopment Bank is totally unnecessary; private persons, the majoritv of whom Governor of the and that all the credit needs of the were landlords, boutique keeprs, itine­ rural .sector c»n be met adeqMaHy rant traders and prof»ss;onal money Governor of the Central Bank, Sir hy existing institutions like the Agri­ lenders. Arthur Ranasinha in a personal note to cultural and Industrial Credit Corpora­ In short, a disturbing fact the Mr Gunwardena, Minister of Agricul­ tion (AICC). surveys showed was that the existing ture, had marie this comment: co-operative credit structure of the * The argument most frequently used country had failed to touch even the "As it is now organised, the Co- by crities of the draft bill was that the fringe of the problem. It showed that ooemtive Federal Bank does not powers and functions of the proposed whether a peasant requires credit for appear to be of much use to the Co­ new bank wer» ton wide and that cultivation, for the marketing of Wis operative Movement or to the public. those powers and functions encro-

ECONOMIC REVIEW JUNE/JULY, 1986. 29 ached on the preserves of other minis­ under the control of the Ministry of rates in some rural areas, has acted ters, and in particular, on the preserves Agriculture. merely as a repository for rural sa­ vings. It has not made and is incapable of the. Fjnan.ce. Minister, to whom the There was opposition nn the Bill subject of commercial banking had of making a dynamic effect to mobi­ from the Minister of Landswhose main been assigned by the Prime Minister lize rural savings for national develop­ point was that it was quite unne­ ment. Such an effort can be made only In summary form the powers set cessary to set up a new Co-operative by a revitalized co-operative move­ out on the draft bill were: Development Bank because the exis­ ment of the type I envisage - with the The power to grant loans to co-ope­ ting one was quite adequate to meet village multipurpose co-operatives at rative societies and to individuals, in­ r a n the credit needs of the un>l s ct r. the base and the new Co-operative cluding loans for building purposes The Lands Minister also maintained Development Bank at its apex. This, and for financing small-scale agricul that the Co-operative Federal Bank then, is another reason for establishing •tural, industrial and business under­ had powers wide enough to meet the the new Co-operative Bank. It will be takings as well as loans for ronsumo­ credit needs of the co-operative so­ a first step on the road to "bringing tion (for example, to farmers between cieties and their members. The Minis­ banking to the million" harvests); the power to carry on the ter also maintained that the Bank had The People's Bank Act business of a normal commercial bank discharged its duties efficiently with and the power to carry on the business "The new Cooperative Bill like the the funds placed at its disposal by the as a pawn broker. Paddy Lands Act aims at sweeping government during the previous eight The critics of the Bill contended away the semi-feudal credit system years. The Lands Minister's rtatement that the proposed new bank should which still prevails in the villages of confine itself purely to the grant of was quite contrary to the position Ceylon and thereby releasing the small loans to co-operative societies taken by the Central Bank which had Ceylon peasant from the clutches of for agricultural and marketing pur­ carried out through examinations each the village boutique-keeper and the poses. year of the working of the co-opera­ professional money-lender" The adoption of that proposal tive bank. It is an irony of fate that although would have certainly ensured the Year after year, the Central Bank's it was Philip Gunewardene, Minister quick liquidation of the "proposed reports had indicated that the affairs of Agriculture in the government of new bank as the failure of the Coope­ of the Co-operative Federal Bank were Prime Minister Solomon Dias Bandara- rative Federal Bank had proved that in a mess, that the bank was being run naike who prepared the ground for the setting up of a new bank; in the small-scale loans to co-operative socie­ inefficiently and that the Bank was face of stiff opposition from his ties were among the most risky forms not achieving the objects for which it of credit. Cabinet colleagues, notably the Minis­ was set up. The Co-operative Federal Bank had ter of Finance, the Minister of Lands, failed because it confined itself to such The Minister of Agriculture and also from sections of the press; loans and did not extend its activities Mr Gunawardene listed as many as it was T.B. Ilangaratne Minister of to the more lucrative and profitable seven more reasons why the Co-ope­ Commerce, Trade, Food and Shipping field of commercial banking. rative Federal Bank had failed. in the government of Prime Minister That is why the Central Bank in In April 1959, when the MEP Sirima Bandaranaiake, who presented its Memorandum to the Cabinet component was still in the Cabinet, the Bill as the People's Bank Bill of strongly urged that the new bank Philip Gunawardena made a strong 1961, which led to the setting up of the People's Bank on July 1, 1961. should be a mixed bank which would case for his stand on the Cooperative undertake not only, purely co-opera­ Development Bank Bill in the course The oroginal proposal was made tive banking functions but also profi­ of which he spelled out in his own by Mr Philip Gunawardena in his table functions of a commmercial way not merely the need for the draft bill to set up a Co-operative hank. Bank but also his ideals and the Developement Bank after dissolving The Central Rank specifically stated philosophy behind its founding and the Co-operative Federal Bank. How­ that the new bank should be able to ever, the new Bank which was set up placed this institution in a historical lend not only for agricultural purposes on the ruins of the Co-operative perspective. He said: "The existing but also for consumption expenditure. Federal Bank by Mr Ilangaratne was banking institutions of the country, 'These were the considered views of named the People's Bank. with the possible exception of the the government's banking experts. At the time the-' Co-ooerative Post Office Savings Bank, have not But the Finance Minister took up Federal Bank was dissolved there we're extended their activities beyond the the position that if the Bank was to 5 Co-operative Provincial Banks and principal urban centres. The Post underrate 'commercial banking it 12 District Banks. A large number of Office Savings Bank, though it ope­ should come under his control and not Co-operative Banks amalgamated with

30 ECONOMIC REVIEW JUNE/JULY, 1986. the People's Bank on their own the backbone of this country". Mr. banking services was growing. Bran­ accord. Later the People's Bank took Ilangaratne further declared that the ches had also been set up in Colombo over a number of Co-operative Pro­ new Bank would "not only grant loans at Bristol Street, Queen Street, Main vincial and District Banks. to co-operative societies, but even to Street, Union Place and the Secretariat premises. Two other important aspects in the approved mutual aid or community development societies". He envisaged People's Bank Act were: that credit- would be given "mainly These were followed soon after with branches in Borella, Kelaniya, "To develop the cooperative through co-operative scieties rather Maho, Nawalapitiya, Warakapola, movement of Ceylon, rural banking than directly to individuals in rural Peradeniya, Mahiyangana, Polgaha- and agricultural credit, by furnishing areas". wela, Morawaka, Tissamaharama, Wei- financial and other assistance to lawaya, Akkaraipattu, Sammanthurai, cooperative societies, approved socie­ Bank Branch Expansion Kattankudi, Trincomalee, Tangalle, ties, Cultivation Committees and other A fundamental objective- of this Monaragala.Mawenella, Ambalantota, persons" new institution was that it should Elpitiya, Wattegama and Matugama. The share capital of the People's cater to the needs of the rural eco­ This spread of branches continued till Bank was Rs 6 million of which one nomy and the resolve with which the the hundreth branch of the Bank was half was given to co-operative societies Bank pursued this objective is best opened on 16.8.1971 at Marandagaha- and the other half to the government. seen in the manner in which it spread mulla in the Gampaha District. Six its activities through branches located years later on 9.5.1977 the two The purposes of the Bank as in the heart of the countryside. In its hundredth branch was opened at defined in Act No 25 of 1961 (Sec 4) first six months of-operation seven Kollupitiya and only five years after were: branches were opened in Polonnaruwa,. this the three hundreath branch of the After the Bank had commenced Hingurakgoda, Hambantota, Anura- Bank was opened on 6.8.1982 at Operations no co-operative society dhapura, Puttalam, Matale and Kandy. Ingiriya. could deposit their funds in any other The next year 17 more branches were Bank or maintain a current account opened in Amparai, Ambalangoda, Meanwhile, a scheme of Rural Without written permission rrnm the Badulla, Bibile, Chilaw, Gampaha, Banks was initiated by the People's Commissioner of Co-operative Deve­ Gampo>a, nalle, Hanquranketha, Bank in 1974 as part of the pro­ lopment. Kalmunai, Kankesanturai, Kuliyapi- gramme for mobilising rural savings for tiya, Kurunegala, Minuwangoda, rural credit through the Cooperative ; No co-op°rative society could Matale, Mullaitivu, Negombo and Movement. These Banks were the ban­ obtain a loan from another commer­ Welimada: bringing the total number king and credit departments of the cial bank, except from the People's of the Bank's outstation branches to Multi Purpose Cooperative Societies Bank, without the written permission 24 at the end of 1962, which included! and 'mobilised savings by accepting of the Commissioner of Co-operative 9 existing Cooperative Provincial Savings Deposits from members and Development. Banks that were taken over. non members alike. In 1965 there- were 8 such banks and by 1971 the These provisions made it clear that By the end of 1965 the Bank had a' number had reached 100. Today there the activities of the co-operative socie­ total of 50 offices. In 1965 new are over 900 branches of these rural ties were limited to the People's Bank. branches had been opened at Horana, banks supplementing the services of Kekirawa, Padaviya, Mannar, Embili- Introducing the legislation in Par­ the 300 People's Bank branches spread pitiyd, Yatiyanfota and Kilinochchi. liament. Minister T.B.IIangaratne throughout the country. asserted that the People's Bank Bill was designed to set up an institution Apart from the branches already The growth and spread of this net­ which would be of tremendous assis­ mentioned were those branches set up work upto the end of 1984 may be tance to the vast majority of the in 1963 and 1964 located at Avissa- seen clearly in these two illustrations People of this country and p'ay an wella, Balangoda, Bandarawela, below from the Bank's annual report important part in transforming the Dehiwala, Embilipitiya, Homagama, for 1984. rural economy. Jaffna, Kalutara, Kahataga'sdigiliya, Kegalle, Ragala, Talawakelfe and At the end of its first 20 years, in He observed that it was "another Vavuniya covering the remotest rural 1981, the Bank had a branch banking Step in the government's policy of regions; as well as semi urban and system of 290 branches and had firmly assisting the rural peasantry who form urban areas where the demand for established itself as a state sector

ECONOMIC REVIEW JUNE/JULY, 1986. 31 commercial bank. The bank popula­ By 1965 the need had arisen to shift actions and servicing of customers as tion ratio for the 290 branches at that the Bank's Head Office from Union well as providing a more pleasent time was 52,000. Place to more spacious premises in working environment for the staff the new G.C.S.U. Building at Sir nearly 60 more buildings were cons­ Several districts appeared to have a , Chittampalam Gardiner Mawatha; tructed by the Bank over the years better spread of branches than in and soon after the Foreign Branch, 39 in the 1981-1985 period to acco­ Colombo District(according tr> a n«te which was providing much of the modate its branches. Today nearly prenared bv S.L.Tilakasiri of the sustenance for other work of the one quarter of the branches are Bank's Research Department) jn Bank, was moved into more spa­ housed in the Bank's own buildings. October, 1981. cious premises at Bristol Street. This aspect of growth and expansion Polonnaruwa had one branch per Meanwhile, negotiations with the is best seen in quantitative terms in 37,600 population, Badulla one per Government to obtain a block of the rapid increase in value of the 37,800. land for construction of a building Bank's Fixed Assets, the major compo­ nent of which is premises. Fixed One hundred and eighty three to house its Headquarters met with Assets which were only Rs 1.4 million (i.e. 68 percent) of the 271 branches success in 1966 when the present in 1962 and Rs 2.9 million in 1965 in operation in 1980 had started Head Office site was. granted to the went up to Rs 10.1 million in 1970 business during the preceding ten Bank; although it was almost ten and Rs 30.1 million in 1972. By years. Of them as many as 117 had years before this building was com­ 1982 the value of Fixed Assets had been opened between 1975 and 1980. pleted and occupied. more than trebled to Rs 97.9 million Thirty-eight percent of all Dranches It is interesting to note that the and by 1985 had reached Rs 179

in 1978 came under the rural sector. H foundation stone for the present hea - million. This and other monetary Due to the expansion of Bank bran­ questionbuilding, which covers a floor indicators of growth over these 25 ches which occured in the subsequent area of 199,794 sq.ft., was laid by the years, given in the table below, tell years, 72 oer cent and 83 percent or then Prime Minister, Dudley Senana- their own story. those opened in 1979 and 1980 res­ yake in July 1969. However, it was The increasing number of branches pectively were in the rural areas. Mcs Sirima Bandaranaike , who opened and buildings to house these offices it in January, 1977 when she was By 1980 the number of branches provided the Bank with a solidly Prime Minister. in the rural areas had grown by 47 growing asset and are clear indications percent. The Current Forced Sale Value and of the Bank's progress in its first 25 In certain areas as many as two- Insurance Value of the building, de­ years. But still another useful indica­ thirds of the branches belonged to the signed bv architect Frank S.Peris and tor is evident in the Bank's growing rural areas with Badulla 71 percent built by the State Engineering Corpo­ workforce which manned these offices and who were responsible for the and Anuradhapura 61 percent. ration, is Rs 300 million. tremendous impact the Bank has made A significant factor in the Bank's The continuing expansion of its on the country in these two and a half expansion over these 25 years is that activities resulted not merely in an decades. From a mere 149 employees the majority of branches opened were increasing need for space but also in 1961 the workforce grew to 1,347 located in remote unbanked areas in in the need to improve the physical by 1965 and 3,841 by 1975. By 1985 keeping with its policy of spreading image of the Bank by construction the total number of employees stood the banking habit and monetizing of new and modern branch offices, at 10,041. rural areas. and by the end of 1972 the Bank Here once again the figures reveal There are several indicators by had constructed 13 of its own branch the picture of growth more explicitly, which the growth and progress of the offices in places such as Welimada, (see diagram) though it may be noted Bank may be measured but perhaps Hambantota, Balangoda, Kalmunai, that the unusual rate of growth in the most apparent to the public was Vavuniya and Maho. With a greater numbers from around 1978 was its expansion of branches and the awareness of the importance of pro­ necessitated by the worsening security more spacious offices it kept ac­ viding modern, well appointed branch situation in the country. quiring asbusiness.grewover the years. buildings that facilitate business trans- In simple monetary terms. Gross

PEOPLE'S BANK FINANCIAL POSITION 1962 1965 1970 1972 1974 1976 1980 1981 1982 1983 1984 198S 1 .Gross Profit 1.1 5.0 9.6 18.0 45.0 65.1 276.6 210.7 212.6 319.7 236.7 2.Profit before tax • 1.1 3.6 6.8 14.6 40.2 44.2 190.4 149.7 117.2 133.8 125.8 119.2 3.Profit after tax 0.5 1.4 3.3 7.4 22.9 14.2 87.4 73.7 60.0 64.3 70.4 67.0 4.Assets-Current 179.4 376.9 822.5 1753.1 2379.6 2744.0 9135.4 11616.8 11898.6 15659.8 16535.5 5. Assets-Fixed 1.4 2.9 10.1 16.9 30.1 49.8 68.2 78.9 97.9 129.8 153.4 179.0

ECONOMIC REVIEW JUNE/JULY, 1986. 32 Pawning short time was 'phenomenal' reported borrowers, and this went up further One of the primary objectives of the Bank's Board of Directors in their in 1970 to Rs 33.5 million advanced the Bank's founding fathers was to 2nd Annual Report. In 1964 its Co­ to 158,500 borrowers. Only two years relieve the rural people from the bur­ operative Rural Banks were also en­ later, by 1972, the sum advanced was den of indebtedness. Many of these couraged to undertake lending against twice as much-Rs 65.2 million and people were not in a position to pro­ pawned articles. Pawning advances given to 285,000 persons; but this vide proof of their incomes or furnish grew rapidly in volume and in 1965 number almost doubled in one year normal securities against bank loans, Rs 13.2 million had been advanced and in 1973 the number of persons the People's Bank initiated many against 65,152 pledges while in 1966 who availed themselves of this con­ schemes over the' years to meet the it went up to Rs 15.9 million being venient form of loan went up to loan requirements of such customers advanced against 79,651 articles.A 462,000 while the amount advanced but perhaps the service that reached major attraction was. the interest rates fo them reached Rs 125.7 million. down deepest to these people, both charged by the Bank, which was well The People's Bank continued to be rural and urban, was its unique loan below those of the.private pawn bro­ the only Commercial Bank providing scheme based on pawning. The history ker. The Bank was encouraged to con­ this'over-the-counter'facility to those of this service also provides one of tinue its expansion of this service in urgent need of financial assistance the strongest indicators of growth in which, it was soon realised satisfied and by 1975 the total advanced the Bank's services. the credit needs of a fairly large sec­ amounted to Rs 201.7 million while The Finance Act of 1963 had res­ tion of the public.who but for this the number of items pawned had in­ tricted pawning business only to special service would have been com­ creased to 632,246. Pawning certainly Ceylonese and the People's Bank pelled to depend on more exacting proved to be among the most popular hardly 2 years in existence, was quick and onerous sources of credit for their , of the Bank's services and the best in­ to grasp this opportunity to open up urgent needs. By the year 1969 paw­ dication of its galloping rate of growth a number of pawning centres. The ning advances had reached as much as is seen in the fact that it went on to' growth of this service within a very Rs 30 million being given to 124,600 reach 761,564 pawnings and Rs 580.7 million advanced by 1980 and finally topping as many as 1,186,761 pawning NUMBER OF ACCOUNT HOLDERS OF PEOPLE'S BANK transactions and Rs 1,843.1 million In advances by 1985.The diagram on page 3 tells the story more graphically. Year Current A/C ' Saving A/C Fixed Deposits Total In simple monetary terms, Gross expenses which were Rs. 3.1 million 24,170 36,647 2,190 63,007 1963 in 1962 rose to Rs. 63.6 million in 1964 28,971 62,459 3,007 94,437 1972 and Rs. 1,101.6 million in 1982; 97,103 3,722 132,677 1965 31,852 while gross profits moved up from 136,121 4,502 175,285 1966 34,662 Rs. 1.1.million in 1962 to Rs.18.0 164,299 3,701 206,370 1967 38,364 million in 1972 and Rs.212.6 million 200,058 4,626 247,536 1968 42,852 in .1982. In 1985 the gross profit of 233,517 5,057 284,222 1969 45,648 the Bank amounted to Rs.247.4 mil­ 49,254 331,975 5,962 387,191 1970 lion with gross earnings at Rs.2,098.5 1971 50,805 414,753 6,648 472,206 , million and gross expenses Rs.1,851.1 1972 51,578 464,079 5,606 521,263 million. The table gives details for se­ 1973 54,169 562,892 5,595 622,656 lected years over the 25 year period. 1974 58,264 725,217 5,169 788,650 1975 59,968 843,466 5,138 908,572 These are indeed impressive records 1976. 67,242 975,587 5,824 1,048,650 of a bank's growth and progress, par­ 1977 72,659 1,119,085 13,991 1,205,708 ticularly when one considers the issue 1978 81,354 1,277,359 27,076 1,385,789 raised first- by those who conceived 1979 104,843 1,653,614 60,641 1,819,101 the original People's Bank Act, then 1980 , 122,253 1,962,316 132,122 2,216,691 1981 132,406 2,147,560 227,511 2,507,477 by the Royal Commission in 1965 and ever since by those who pointed out 1982 140,039 2,333,352 245,657 2,719,028 1983 159,398 2,605,444 261,236 3,026,078 that the Bank was straying from its 1984 173,128 2,839,450 266,676 3,279,254 fundamental purposes. The question 1985 181,250 3,057,549 332,072 3,570,871 agitating the minds of Bankers is: Can the two state banks fulfil govern-

ECONOMIC REVIEW JUNE/JULY, 1986 33 ment and public objectives of forceful The Bank must lend only to viable rower is made aware of the fact that banking and lending while facing the farmers- bank loans are not political handouts- certainty of being judged in interna­ So runs the vicious circle of argument- and repayment of advances is a con­ tional circles by the profitability who induced whom to lend and under tractual obligation. position reflected in their annual what pressures, he says. balance sheets? Despite the debilitating constraints He adds: A commercial bank len­ of forced lending the Bank has had to In a note entitled " 14th Floor to ding to viable agricultural projects and undertake and the fact that in its for­ the Treshing Floor" the People's Bank to credti worthy borrowers will find mative years " the grand design" of Chairman, Dr S.T.G.Fernando ( he was itself accused of a narrow outlook of the Bank as an instrument for the Director of Economic Research, being too unduly concerned with pro­ transformation of the rural economy Central Bank before he assumed fit and neglecting its statutory role of duties as Chairman, People's Bank) and the regeneration of the masses was being a catalytic force in the develop­ says that "forced" lending can be to some extent vitiated, and also not­ ment effort". damaging to the relationships which withstanding that during the rapid should be fostered between rural Dr Fernando sums up saying that expansion of commercial banking the banker and rural customer, between the right climate for the spread of the Bank was in danger of losing sight of borrower and lender. He also make banking habit in Sri Lanka and the its real purposes, the People's Bank these points: development of a trust in institutiona­ can be proud of its performance in when the present government came lised forms of lending and borrowing its first .25 years as the Profit and Loss into power in 1977, there was a relaxa­ can be fostered only when the bor Accounts for 1985 show: tion of the eligibility criteria and loans were granted liberally. Condensed Statement of Profit & Loss Period January 1 to December 31,1985 Takfng advantage of the relaxed Sri Lanka Rupees ('000) criteria certain sections of the farming (Before Audit) community-as. well as the non-farming Gross Earnings 2,098,495 community-in connivance with village Gross Expenses 1,851.061 level institutions (co-operatives Gr«ss Profit 247.434 mostly) abused these credit facilities, Profit before tax 119,244 resulting in a disbursement of Rs 420 Profit after tax 67,044 Undivided Profit 67,044 million arid a loan defaulting rate of Disbursed to about 80 percent during the 1977-78 Maha (Main) Season alone; Dividend 15 percent 7,500 While a sum of Rs 602.4 million Reserves and other funds 59,544 was outstanding as at 30 September 67,044 BSBBSBSS 1978 out of loans granted prior to the ( 1978 Yala season, by 30 June 1981 1985 Sri Lanka Rupees ('00) the bank had succeeded in recovering Assets Rs 41.8 million out of this amount, Current that is 7 percent. Cash and Short Term Funds 3,646,176 Trade Bills 1,386.862 The data shows the uphill task the Advances to customers & other accounts 13.451,984 two state banks face in getting back Government securities 564,722 their dues, Dr Fernando says and he Central Bank securities 446,505 asks: investments 19,395.249 Can the banks afford an army of Fixed 204,853 Premises and equipment 179,042 field officers to scour the countryside Liabilities of customers for engagements 12,343,995 to collect their dues? 32,123,139 Shouldn't the onus of payment and responsibility be on farmers? Liabilities How should wilful defaulters who Current deposits 8t other accounts 19,356.889 take cover under political or other Final dividend 7,600 patronage be dealt with? Capital Reserves These questions ire never answered Share Capital 49,998 when raised; they are swept or brushed Special, General & Other Reserves 364,777 414.776 aside with the comment: Engagements on behalf of Customers 12,123,139 "It's the responsibility of the bank 32,123,139 which lends to recover its dues".

34 ECONOMIC REVIEW JUNE/JULY, 1986