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Questions and Answers

How safe are your deposits?:

RAM Ratings Lanka

Before you decide to deposit your hard-earned money in a licensed commercial or specialized bank or a registered finance company, you must be convinced that the entity will be able to return your funds upon maturity, as promised.

In this context, credit ratings help the public to gauge the safety of their deposits. This is very important especially in the face of some high profile failures of unrated and or unregulated finance companies.

It should be noted that the Central Bank of Sri Lanka has mandated that all commercial banks, specialized banks (collectively referred to as Banks) and registered finance companies to obtain a credit rating. Hence the public would be well advised to check the rating of the financial institution before they make their deposit decision.

Banks and finance companies offer various deposit options and the vast majority of depositors decide on a particular institution solely on the interest rate they offer.

However, this should not be the case as high returns are accompanied by greater risks. In this context, it is important that depositors should have a diverse portfolio of deposits in terms of tenures and institutions in order to achieve the right degree of safety and return.

Hence, by measuring the ability and willingness of a financial institution to honour its financial commitments, credit ratings are essential inputs that help you make better-informed deposit decisions.

Credit-Rating Agencies

There are two domestic credit-rating agencies in Sri Lanka recognized by Central Bank, of which RAM Ratings Lanka is one of them. Each rating agency aims to provide a rating system that assists depositors to determine the risks associated with depositing in a specific financial institution. Credit ratings can be assigned to entities (ie financial institutions, cooperates and insurance companies) or to issues (ie specific borrowings in the form of securities such as debentures, promissory notes etc) and indicates an issuer’s ability to honour its financial obligations or issue.

However, it is important to note that ratings are not a buy or sell recommendations, nor do they represent a guarantee against default. Rather, ratings are a measure of an entity’s ability and willingness to repay its depositors and or creditors hence a relative ranking only.

The Rating Scale

Although the rating scale differs between rating agencies, RAM Ratings Lanka’s credit ratings ranges from AAA, which denotes superior repayment capacity or highest credit quality at one end, to “D” or in default at the other (refer table below). In other words, from the depositors’/investors’ point of view credit rating provides a simplified measure of the repayment capacity and can be used for deciding the return given the institution’s repayment capability. ie investors should be prepared to accept a lower return attached to a AAA rated instrument as compared to a AA rated paper.

Accordingly, interest rates should increase as one move down the rating scale.

In addition to the rating per se, RAM Ratings Lanka also encourages depositors to read rating rationales of each financial institution, available on rating agencies’ websites. In this regard, the depositing public is invited to visit RAM Ratings Lanka’s website at www.ram.com.lk

RAM Ratings Lanka provides these rationales to be downloaded free of charge or any obligation in the interest of serving the public.

Cheated for insurance policy

Question: Medical policy No. W/010/SMP/5016

The policy holder is my wife - Mrs. M. L. T. Nelson, a retired Government Pensioner at present. She had paid premium for eighteen years (18) without any claim. Recently she wanted to get her eyes treated and then found out that some unknown persons name had been entered when she was making payment of the policy.

My letter of August 22, 2009 addressed to the Chairman has not been replied to date. I respectfully request to intervene in this matter and obtain for me all premiums paid for the past 18 years with interest and compensation.

Nelson, Moratuwa.

Answer: You should make a written complaint to the Insurance Ombudsman as he was been appointed by the Government to look in to all disputes regarding Insurance matters.

The Ombudsman will in the first place call for an explanation from the Sri Lanka Insurance Corporation and let you know the outcome or fix an inquiry and call you for the inquiry. Your written complain should be addressed to ‘The Insurance Ombudsman’, 143A, Vajira Road, Colombo 5. We are also trying to contact the Insurance Corporation directly in order to determine the cause and if possible assist you. Please write to the Insurance Ombudsman without delay.

Refund of dead husband’s EPF contribution

Question: I am writing this on behalf of a poor lady who has sought my help. The basic facts are as follows:

Marriage certificate available.

Death certificate available.

Deceased worked at Ceylon Petroleum Corporation, Kolonnawa. Identity card (with photo) issued by the Corporation is available (photcopy enclosed), died in service.

A photocopy of 1972 EPF statement is also enclosed please.

The lady had come across the above papers only recently. She has written a number of letters to the EPF/Central Bank (registered receipts available). They have remained silent, no replies. Contributions and interest up to at least the date of death (in service) should be available.

Please let me know how one could help her to obtain relief.

G. E. R. W. Dharmawardene JP, Maharagama.

Answer: You have to obtain a ‘K’ form, from the EPF office at the Labour Secretariat, Narahenpita or any Labour Dept. Office. Having filled the relevant column in the ‘K’ form, the balance column/details have to be filled and signed by the Ceylon Petroleum Corporation. She should take along the NIC of the deceased husband and copy of the ETF statement as forwarded to us.

She will be entitled to both ETF and EPF. If her deceased husband had nominated her as the nominee for EPF and ETF benefits it will be easier. She will have to take her NIC and the marriage certificate as well.

The person to contact at the Ceylon Petroleum Corporation is Mr. P. Dayaratne, Deputy Personal Manager (HR) on the 4th floor of Rotunda Towers, Rosmead Gardens, Colombo 3. (Building adjoining Temple Trees) contact telephone number of Mr. Dayaratne is 2473641. We have already spoken to him. Phone quote the name of the deceased and EPF reference No. A 3223/1875.

Minimum number of employees for liability and EPF matters

Question: I refer to queries raised in the ‘Daily News’ of November 5, 2009 and wish to comment as follows:

A. Retiring gratuity

It is true that when the number of employees is less than 15 there is no legal requirement to pay retiring gratuity though the continued year of service is more than 5 years. However the employee could refer the matter to Labour Tribunal who will inquire and give a ruling as to whether gratuity is payable or not i.e. the employee’s right is not suppressed.

B. Terminal benefits

On retirement, resignation/termination of employment, terminal benefits have to be paid in accordance with the letter of appointment and statue i.e. statutory benefits cannot be denied even by agreement.

One of the statutory requirements is that the employees is entitled for leave pay i.e. unutilized privilege leave earned during the previous year and the current year of leaving should be paid for together with EPF & ETF benefits. This EPF and ETF benefit is not considered by several employers as the employees also do not protest due to ignorance.

Regarding bonus it is true that it is paid according to the terms of the organization.

In fact I am aware that some employers maintain the policy of paying bonus to employees who are in service at the time of declaration of bonus and not otherwise. Usually Labour Department would not interfere unless the employee concerned proves that his bonus was denied due to biased attitude of the employer.

S. R. Balachandran, Wellawatta.

Answer: We thank Mr. Balachandran BSc, FCA FCMA for his regular contribution. This further inputs as additional information will be useful to both Vincent Perera and S. M. Haroon as well as all our readers knowledge is something which the more you share the more you gain. This explanation covers two questions and answers in the Daily News paper of November 5, 2009, under the headings ‘Minimum number of employees for gratuity liability’ and ‘Resignation/EPF matters’.

Invest in financial institutions

Question: Whilst thanking you for the professional guidance you provide to the general public I wish to seek your advice on the following matter which I am sure will also benefit several others in my situation.

I am a Senior Citizen who depends purely on the interest from my savings. I do not have any other source of income. After the collapse of certain financial institutions I transferred by deposits to the National Savings Bank and Treasury Bills.

The interest rates offered by them are progressively falling to very low levels. As the cost of living is increasing, with the drop in income difficult times are seen ahead.

Financial institutions registered with the Central Bank, claiming to be stable are offering better rates of interest than the Government institutions. It will be appreciated if you would kindly advice whether it is possible to gain any idea of their standing from the annual audited accounts published in the local newspapers.

If so as a layman what we should look for in these statements.

Some financial institutions publish their Fitch and Ram Ratings. What do they mean and what is the safe level we should look for? Are there any other ways of making a safe decision?

JP, Colombo 6.

Answer: The best advice we can give you is to go by the Fitch and Ram Ratings. Recently the OPA organised a public seminar on ‘Investment Analysis’ in collaboration with Ram Ratings (Lanka) Ltd. We have published below a write up by Ram Ratings. You could view the Ram Ratings on www.ram.com.lk and Fitch rating on www.fitchratings.lk Those who don’t have access to IT facility may have to get help.

Pension anomaly of a specialist English trained teacher

Question: I would be very much thankful if you could help me to find correct authorities to find an answer for the above.

I joined the Education Department as an English teacher in 1949. Then in 1975, I passed out as a Specialist English trained teacher.

I retired in 1984. At the beginning the pension was Rs. one thousand and something - then it went up to Rs. 3,000, then to Rs. 9,000 and now it’s Rs. 11,965.25. My contemporaries say that I am entitled to be placed in a higher scale. Why the disparity? I would be thankful to you to get the respective authorities to clear this pension anomaly.

K. Pahathkumbure, Colombo 5.

Answer: We suggest that you write directly to the ‘Pension Anomaly Board’ C/o The Director General of Pensions, New Secretariat Building, Maligawatte, Colombo 10.

You have to provide all relevant information beginning with your pension number, years of service, grades, increments, last salary drawn, increases in pension from inspection etc. We wish that your pension anomaly if any will be sorted out soon.

Tabulation of interest on Provident Fund collection

Question: I have been employed in a Mercantile Firm and the remittance of Provident Fund dues has been very irregular. As a result the employer had to pay the penalty on delayed payment.

When each delay occurs please let me know whether I will get the benefit of the accumulated interest for the entire period of my employment, where Provident Fund dues have been remitted.

J. V. R. Dias, Wattala.

Answer: You have raised a very valid question that affects most employees who are under Provident Funds such as EPF.

When the employer delays the contribution, the employer has to pay a penalty.

This penalty ranges from 5 percent for delay within 10 days up to 50 percent for delays exceeding 12 months. However, this penalty goes to the Government and does not benefit the employee. Therefore, there is no interest benefit either to the employee. It is sad but true that the employee looses interest earnings when the employer delays, the contributions. This is what we have been given to understand.

Claiming EPF refund from overseas

Question: Please advice me on the procedure for a person who is now a US citizen and living in the States, to submit a claim for EPF refund. Can he appoint an Attorney to receive the money?

Please let me take this opportunity to thank you for the answer to my earlier query. You have become a spokesman for the EPF Department, as they do not answer the phone or reply to letters. We owe you a debt of gratitude for the service.

Reader - Mt. Lavinia

Answer: We appreciate the ‘thank you’ card sent by you for answering your previous question and for the service the OPA is providing to the public.

The answer to your question above, yes a person who is now in the US or anywhere overseas can give the Power of Attorney to some one living in Sri Lanka preferably a close relation. In addition all the formalities have to be met by the person in whose name the EPF is. That is the ‘K’ form has to be filled and signed by him which will be completed by his last employer in Sri Lanka. Also you will require photocopy of his NIC if available or passport, birth certificate, bank account details in Sri Lanka and two copies of photograph (passport size) one of which has to be certified on the reverse by preferably the Sri Lankan High Commission office in that country. For further details please contact the EPF Department at the Labour Secretariat, Narahenpita.