Harassment of NBFIs

Thursday, 24 July 2014 00:00 - - {{hitsCtrl.values.hits}}

The Central Bank announced in January a consolidation plan for the Finance Companies (NBFIs) in the country. The CBSL issued licences to every Tom, Dick and Harry until it finally struck them that the number was too large to monitor and many were getting into financial difficulties. Hence the idea of consolidation. The move behind this was also because CIFL crashed. If the CBSL was doing their monitoring properly the crash should have been detected two years before the crash. A perusal of the quarterly accounts which are available on the CSE website shows that the loan portfolio was gradually declining every quarter and an investment in a joint venture land project was increasing. This was money being spirited out. There was no return on this and interest expenditure began to exceed interest income. Hence the crash which could have been checked. Even when CIFL was in difficulties the CSE and CBSL permitted it to have a share issue. I understand that the higher authorities are not happy about this situation and if any other company crashes, CBSL will be held responsible. Hence the intimidation of NBFIs to merge. For a merger to take place the buyer has to offer a price which is beneficial to him and the seller will look at a price which justifies a decision to sell his company. If the two cannot converge, then the deal falls through. The Central Bank in its haste to save its skin has taken it upon to determine at what price the shareholders of a company should sell. This is beyond all norms of business practices. The Central Bank is trying to force companies to sell at lower values to suit its agenda which does not appear to be working to its timetable. Some of the audit firms which were given contracts by the CBSL to carry out due diligence on the NBFIs have no experience in NBFIs. Recently it was reported in the Daily FT that Indra Investment with equity of Rs. 503 m is to be acquired by Commercial Bank for Rs. 870 m. In another case a company has been valued at four times equity based on future cash flows. Another bank controlled by the Government through EPF funds is to acquire a 30% stake in a revived Ceylinco Company which is still in trouble but whose directors have strong Government ties. The CBSL has got into this mess by issuing too many licenses and is now trying to rectify the situation by intimidating and harassing NBFIs to merge. Anil Fernando