In this context, it is opportune time for Sri Lanka to consider the need for the enactment of a law comparable to the applicable laws in other countries and the preparation of guidelines for industrial restructuring in Sri Lanka. Recognising the need, the Central Bank has set up a committee to review the laws for recovery of loans applicable to banking institutions. The committee comprises representatives of all relevant sectors and it is working towards arriving at a consensus on debt recovery proposals. In the meantime, the Business Recovery and Insolvency Practitioners Association of Sri Lanka (BRIPASL) has had a series of discussions and formulated draft legislation for the revival of sick industries. I appreciate the co-ordination between the two committees and their efforts in arranging this important workshop. I understand that the Keynote Speaker today, Mr. Sumant Batra from India who has acquired wide knowledge on restructuring of sick industries in India would elaborate his experience on corporate turn-around and insolvency, and respond to similar proposals that would be made at this workshop. I am confident that the eminent speakers from various fields who are present at this forum, would provide an opportunity to the distinguished participants to share and rationalize ideas, thus ensuring the formulation of sound principles to be incorporated in the draft legislation on the restructuring of sick industries. A comprehensive law on this aspect would help enterprises to become viable in the medium to long term while enabling the banks to recover the debt and be viable financial institutions.

1/2  I am aware that banks have their own methodologies to evaluate risks when granting loans and advances and recently, they have been adopting modern methods of credit risk mitigating techniques based on the Basle Principles. To begin with, the lack of adequate knowledge of the industry, poor credit assessment skills and ineffective follow-up and supervision of loans are the key to non-recovery of debt. A banker who lends only against collateral without looking at the viability of the project is obviously imprudent. Sometimes, banks are not familiar with the industry to which a loan is granted - it is imperative that they are conversant with yields, markets and prices to be able to assess the viability of the project. In others, follow-up and monitoring is virtually non-existent. The close monitoring of a project during the gestation period or grace will often leads project to fruition and in turn will bring in repayment according to the repayment plan. These areas call for special attention by banks and financial institutions. The banks try to mitigate these lapses by the use of modern technology and intensive evaluation processes in granting loans and advances. Even these attempts can be beaten by unexpected eventualities and by willful defaulters. While credit discipline and culture are of paramount importance for financial institutions’ viability and the stability of the financial system as a whole, we need to strike a balance between the system viability and revival of enterprises/industries, in a manner that they can be going concerns and repay their debts.