Sri Lanka’s large state banks have been asked to bid at low rates at volumes given by then Finance Minister Ravi Karunanayake, at two controversial bond auctions alleged to have been rigged, a commission of inquiry had been told.
A meeting of state bank officials of National Savings Bank, People’s Bank and Bank of Ceylon had been called on March 28, by Minister Karunanayake, Sri Lanka’s Daily Mirror newspaper reported
People’s Bank General Manager Vasantha Kumara was quoted as saying that the state banks were given the rage of rates to bid at four different maturities offered at the auction the following day.
The Minister had assured the banks that bids are higher rates (lower prices) would not be accepted. Kumara had his Treasury to confirm with the Public Debt Department of the central bank, that such would be the case.
The bank had been told that the message would be conveyed the tender board.
Kumara had said there were earlier occasions when the Treasury had had discussion with the state banks to lower rates but this was the first time a Finance Minister had directed then to bid at lower rates
But bids at much higher rates than the banks had been instructed to bid had been accepted at the auction on March 29, 2016.
The commission of inquiry was also played a tape where Arjun Aloysius, son-in-law of then Central Bank Governor Arjuna Mahendran giving instructions to Kasun Palisena, CEO of his primary dealership Perpetual Treasuries conveying insider information on the bids to be made by state banks.
On March 30, a second meeting had been called at the Treasury again chaired by Minister Karunanayake where state banks were again asked to bid at lower rate at an auction the following day on March 31.
They were given the rates and volumes to bid at the auction by Minister Karunanayake, the witness had said.
Kumara had raised concerns at the meeting saying though assurances were given bids at high rates had been accepted at high rates.
State banks had already lost money on the earlier auction and they agreed to do bid low (when rates falls bond prices rise), Kumara had said.
However again bids at higher rates had been accepted by the central bank’s public debt department.
Only 25 billion rupees of bonds had been advertised but higher volumes had been accepted.
Kumara had also informed R Paskaralingam, advisor to the government reminding about not accepting bids at higher rates after some People’s Bank customers had bid at higher rates than was asked to do by Minister Karunayake. There was no replay from Paskaralingam.
There was a gap of around 100 basis points from the rates state banks were asked to bid and the rates accepted, the inquiry had been told.
People’s Bank Chairman Hemasiri Fernando had also testified that Minister Karunanayake had asked state banks to bid at low rates, the Daily Mirror reported.
National Savings Bank chairman Ashwin de Silva who had attended the first of two meetings had told the commission that Minister Karunanayake wanted state banks to bid low.