Peoples Bank to raise debentures without state guarantee

Peoples Bank to raise debentures without state guarantee

21 August 2019 02:06 pm

Peoples Bank, a state owned leading commercial bank is to strengthen its financial stability and effectiveness in its operations.

The People's Bank Act Amendment Bill which will be taken up for debate tomorrow (August 22) is aimed at increasing the authorized capital and the debentures, Chairman of the Bank Nissanka Nanayakkara disclosed. 

He asserted that, there will be no share issuance to depositors or employees of the Bank nor will there be any share conversion options in the event Debentures are issued

There is no imminent danger in this exercise under proper checks and controls. But the million dollar question is why it is necessary for the bank to have a complete freedom for this, banking sector experts asked.  

In accordance with the provisions of the amendment bill, the requirement to obtain the prior approval of the Monetary Board and the determination of the methodology of a debenture issue through the intervention of the Ministry will be removed 

This provision appears to be a license to be granted to the Bank Authorities to freely decide the supplementing of any sum of funds through debentures. 

Judging from the bank’s   performance over the years and the failure to put the bank on a real commercial footing sounds an alarm bell which should receive the attention of all, banking sector experts said. 

By this amendment, the need to provide a compulsory guarantee by the Ministry of Finance on account of the repayment of any sum due on debentures issued by the Bank is to be repealed.

The effect of this amendment is that future issue of debentures by the bank would not be guaranteed by the government.

Accordingly, “the authorised capital of the bank shall be Rs. 50 billion divided into one billion shares of Rs. 50 each” , they said.