- CBSL Deputy Governor Hints
The market’s excess liquidity amounting to over Rs. 120 billion on an overnight basis day in and day out causes a hole in Central Bank of Sri Lanka’s (CBSL’s) balance sheet, an official told this reporter on Friday.
CBSL Deputy Governor K.G.D.D.Dheerasinghe said that by CBSL sterilizing this excess liquidity, it paid billions of rupees to banks’ by way of interest payment last year, with this year not going to be any different.
CBSL Governor Ajith Nivard Cabraal also hinted at the same.
Speaking at a function in Colombo on Friday, he said that this year and the next will be an era of consolidation, with banks’ working towards the target of doubling per capita GDP income from the present US$ 2,000 to US$ 4,000; before taking off in 2013.
CBSL sterilizes excess liquidity through its open market operations (OMO) window.
Currently its overnight (O/N) Repo window offers banks a 7% interest rate for parking its excess with the same. Previously CBSL had dual OMO windows, the repo and its OMO operations, with the latter offering a higher interest rate to banks than its OMO window.
These pages, in this paper’s July 4 edition of last year pointed out this distortion and the excess cost that CBSL had to bear because of this.
Well over three months after publishing that business editorial, CBSL on October 20 of last year discontinued having dual OMO operations to sterilize excess liquidity in the system, opting to offer its O/N repo window only to the market, to park its excess liquidity, thereby saving a substantial sum.
“In the backdrop of the recession, in the world over this is a problem, ie excess liquidity in the system,” alleged Dheerasinghe. Even India is also in a similar quandary, he added. Opening of bank branches such as this is one way to boost lending, Dheerasinghe said.
On Friday Sampath Bank opened its first ever super branch in Colombo to the public. Located at Dharmapala Mawatha (formerly Turret Road), the branch, the 175th in Sampath Bank’s branch roll out, will be open 365 days of the year from 7AM to 10 PM each day.
Sampath Bank Managing Director Harris Premaratne in his speech said that the Bank in its expansion drive opened-up 60 branches in the last two years providing new employment opportunities to some 400-500 persons. This year, it will recruit 400 more.
A similar super branch will be opened in Kiribathgoda shortly, in addition to regular branch openings.
The Bank is also seeking regulatory approval for micro-finance. “After that approval is got we shall have had covered all segments of the population,” said Premaratne. Meanwhile a corporate manager said that this year is looking better than the last, while the last was better than the previous.
He said that a commercial bank, which had a Rs. 10 billion margin trading facility in the stock market offered to investors, had that facility fully booked. However investing in the stock market is not investing in the real economy.
Investments in the real economy are brick and mortar investments, infrastructure development and in the investment of more goods and services (see also page 33).