The Hon. Rohana Bandara

¶ 01 Mr. Presiding Member, I move:

¶ 02 “Whereas a large number of Cooperative Rural Banks closest to the public have collapsed in recent times due to various reasons causing severe hardships to their depositors; this Parliament urges that these banks be brought under proper supervision by the Government to prevent such situations.”

¶ 03 Mr. Presiding Member, there are over 14,000 cooperative societies in Sri Lanka. Among them, a main source of profitability for many cooperatives has been their petrol sheds and rural banks. Despite their potential, various cooperative rural banks have become loss-making for multiple reasons. It is vital to examine why they incur losses and whether expected objectives are being met. The rural banking system is a very important institution, established with noble aims and operated well for a long time. Initiated under Minister Philip Gunawardena’s policy framework and implemented by T.B. Ilangaratne, these banks reached a strong position by 1961.

¶ 04 Capital from the cooperative federal banks was pooled to set up the People’s Bank, and these rural banks were to operate under its supervision. However, after 1980, People’s Bank deviated from its original mandate. It was established to protect, supervise and support rural banks towards their goals. Initially, cooperatives held 51% of People’s Bank’s capital; today, that share has fallen below 3%. People’s Bank rightly pursues commercial targets now, but its foundational role—to supervise rural banks—has lapsed, with oversight shifting to Provincial Councils through Commissioners under the Provincial Statute.

¶ 05 We discussed recently in Parliament the “Saubhagya” Cooperative Bank in Anuradhapura, North Central Province. There can be ventures undertaken for commercial purposes within the legal framework. If they benefit the public, they should be allowed to develop; if there is corruption or theft, action must be taken. Excessive, unfounded criticism damages institutions and endangers depositors’ funds. There are oversight bodies under the Provincial Commissioner—let them supervise. Do not politically dismantle institutions that are progressing. “Saubhagya” has reportedly become the most successful bank in the North Central Province with assets worth billions in a short time. That success should be studied and, if there is wrongdoing, prevented; but good practices should be replicated elsewhere rather than subjecting all to political interference that leads to failures—often by replacing capable boards with political appointees focused on narrow interests.

¶ 06 Rural banks were established to protect villagers from usurious moneylenders and to inculcate banking habits, safeguard savings, and extend fair credit. Initially, supervision under People’s Bank functioned well. After 1980, oversight shifted to district cooperative bank unions. Now, profitability is often achieved not by lending to villagers but by collecting deposits and placing funds with development banks or investing in central bank instruments and bonds to earn interest, remitting only small margins back to the rural banks. The core objective—lending to rural people—has become limited.

¶ 07 Government has also provided facilities intending to develop the sector, but some have been misused. For instance, Rs. 250 million from the “Divisahana” Fund was given recently to cooperative rural banks to on-lend to the public; instead, much of it was re-deposited elsewhere, with only small loans (e.g., Rs. 10,000) given to individuals while the rest earned interest in major banks. Funds gathered from villagers are thus cycled to urban commercial ventures rather than supporting local livelihoods.

¶ 08 There are also allegations of mismanagement—for example, in Polonnaruwa, where about 30 officials plan an overseas tour costing over Rs. 6 million while annual income is about Rs. 10 million. Under what approval? Is this within the Commissioner’s authority? These warrant strict supervision.

¶ 09 We should not view successful banks with jealousy. If there are black money flows, money laundering, or suspicious deposits, identify and address them transparently. In the case of “Saubhagya” in North Central Province, rather than parking funds in treasuries or external deposits, channel these funds to local agriculture and other productive projects in Anuradhapura with Government facilitation.

¶ 10 Given modern banking technology—ATM networks, SMS alerts, agency banking—rural banks must be networked and brought under unified supervision to deliver comparable services to depositors. Otherwise, they risk capture by rent-seekers and further collapses.

¶ 11 Finally, if re-establishing a People’s Bank-type supervisory mandate is not feasible given its current commercial role, the Government should establish or designate a robust supervisory mechanism or institution—with technological modernization—to oversee and network rural cooperative banks effectively.

¶ 12 I will add further views later. I conclude by allowing our Hon. Chaminda Wijesiri to second the Motion. Thank you.