July 09, 2008 (LBO) – In a far sighted move that puts the country firmly on a higher growth path Sri Lanka’s central bank Governor Nivard Cabraal has ruled out state directed bank lending as a long term policy. “As a policy we have resisted that (directed lending) because we think that the bank should have the space to decide on their own risk mix,” Governor Cabraal told a forum organized by the Ceylon Chamber of Commerce, Sri Lanka’s largest business association.
“And that is good for them because depending on their own funds mobilization as well as the areas that they are applying the funds they should have the freedom to do so.
“I personally think that freedom should be persisted with.”
Cabraal was responding to a call from a panelist at the business forum that Sri Lanka should increase state directed lending.
Cabraal said there was already a rule that banks should direct 10 percent of their lending to agriculture as a priority but he did not think it “a very large number but a reasonable number.”
Rajendra Thiagarajah the head of Hatton National Bank, said directed lending had proved a failure especially in India.
“The best example of directed lendin