Following the above forum, the first round of one-on-one meetings were held between 17 and 23 January 2014, with the Boards of Directors and senior management of banks and NBFIs, chaired by the Governor, to discuss their business plans under the newly announced plan and further clarify specific issues pertaining to particular institutions. Action 2: Communicating the mandate and time frame In line with the objectives of the financial sector consolidation programme, we provided the banks and NBFIs with a mandate to form internal steering committees to ensure a strategic fit by choosing a suitable partner and to ensure smooth transition to the new arrangement so that the process would ultimately generate synergies in the industry. Further, the relevant banks and NBFIs were requested to align their immediate future business expansion, new recruitments and other capital expenditure with the new developments and to submit periodic progress reports to the Consolidation Unit. We also requested the banks and NBFIs to formulate strategies to work in line with the time frame suggested by the Central Bank, which basically requires all consolidation plans to be submitted by 30 June and completed by end of 2014. Although this time frame was subject to criticism by some, we simply know by practice that unless we have a reasonable deadline, no plan would be effective. However, we maintained some flexibility in the time frame for the completion of mergers and acquisitions that are of a complex nature.
Banks in Sri Lanka have been in operation for over 160 years while the NBFI sector has been a part of the economy for the last 80 years. Before the economic liberalisation in 1977, NBFIs carried out hire purchase and leasing business using their own funds or personally borrowed funds. Since the owners of such companies prudently managed their businesses and were cautious in lending, NBFI failures during pre-1977 era were extremely limited. The new economic policies in the post-liberalisation period gave rise to higher demand for credit from the private sector, which led the NBFIs to raise public deposits. However, lack of controls and regulations during that period limited the ability of the Authorities to move directly into the affairs of NBFIs. With the commencement of operations of the Central Bank of Sri Lanka in 1950, the Bank Supervision Department was set up, and has since been entrusted with the responsibility of supervision and examination of banking institutions. The scope of functions of the Bank Supervision Department was extended with the enactment of the Control of Finance Companies Act, No.27 of 1979, to include the supervision of NBFIs. The Bank Supervision Department was entrusted with the responsibility of providing the public with the required confidence in the financial system and protecting the interests of depositors. In order to achieve this objective, the Department was charged with the duty of continuous supervision and periodic examination of all banks and NBFIs in Sri Lanka.