Central Bank cancels TKS Finance license after action on The Finance Company
The Central Bank of Sri Lanka today (19) cancelled the license issued to TKS Finance Limited under the Finance Business Act, No. 42 of 2011 with immediate effect, three days after extending the regulatory actions imposed on The Finance Company PLC on for a one month period.
In a press communique the Central Bank stated that it arrived at this decision after taking several regulatory actions and allowing TKS the opportunity to provide justifications for violating/contravening the provisions of the Finance Business Act No. 42 of 2011 (FBA).
The Central Bank said that TKS Finance Limited (TKSF) has continuously been violating/contravening the provisions of the FBA and several Directions and Rules issued thereunder. It added that the financial condition of TKSF is not satisfactory due to deficient capital level, poor asset quality, continuous losses and failure in repaying depositors’ money on demand or at maturity, etc.
Despite several time extensions granted to TKSF by the Monetary Board of the Central Bank of Sri
Lanka to comply with the provisions of the FBA and Directions and Rules issued thereunder, no satisfactory progress had been made in order to revive the critical condition of TKSF and to comply with such provisions, directions and rules.
Considering these concerns, the Monetary Board took numerous regulatory actions, including imposing maximum ceilings on deposits and borrowings, suspension of accepting new deposits, suspension of granting new loans and advances and restrictions on investment activities, the Central Bank said.
However, since there had been no satisfactory progress at TKSF even after such regulatory actions were taken, the Monetary Board issued a notice of cancellation of the licence issued to TKSF on 10th July 2019. TKSF had the opportunity to tender its objections, in writing, for the notice of cancellation of the licence, within the time period stipulated in the FBA, giving reasons as to why the licence issued to TKSF should not be so cancelled. Accordingly, TKSF submitted its objections to the Monetary Board by their letters dated 02nd and 08th August 2019.
As the reasons/proposals given in the objections did not provide sufficient and substantial grounds for the Central Bank to withdraw the notice of cancellation of the licence, it had, in terms of Section 37 of the FBA decided to cancel the licence issued to TKSF under the FBA to carry on finance business with effect 19th September 2019.
Sri Lanka Deposit Insurance and Liquidity Support Scheme (SLDILSS) will take necessary actions to pay compensation to the insured depositors of TKSF up to a maximum of Rs. 600,000/- per depositor as per the regulations of the SLDILSS, the Central Bank said, adding that depositors may also be able to recover part of their remaining deposits through the process of liquidation subject to the regulations relating to priority of claims in a winding up of a finance company.
All debtors of TKSF have been advised to pay their dues to TKSF on time only through a bank account under the name of TKSF and maintain records for all payments to avoid litigations against the debtors of TKSF, the Central Bank said. Therefore, depositors have been requested to co-operate with the Central Bank in this regard.
This license cancellation comes a few days after the Central Bank decided to extend the regulatory actions imposed on The Finance Company PLC on for a one month period from 15th September 2019, along with further actions on cost minimizing measures to safeguard the interests of the depositors and other creditors and to facilitate a potential investor for TFC. The extended regulatory actions include the suspension of accepting new deposits, withdrawal of deposits and disbursement of loans and advances to facilitate the restructuring process of TFC.
However, later today the Central Bank provided another finance company, Sinhaputhra Finance PLC, an opportunity to implement a proposed capital augmentation plan within the timeframe stipulated in the interest of depositors. Earlier this month the Central Bank had issued a notice of license cancellation to Sinhaputhra due to its critical financial condition and continuous non-compliance with the regulatory requirements imposed by the Bank.