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CBSL says interest waiver on loans and leases could undermine stability of fiscal system

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‘Moratorium related to payment of installments on capital borrowed ‘

by Suresh Perera

Notwithstanding protests over charging interest on repayment of loans and leases based on the one-year Covid-19 related moratorium, a senior Central Bank of Sri Lanka (CBSL) official said there’s no question of reversing the decision as neither banks nor other financial institutions can afford to absorb the negative impact of a waiver on interest on the capital, particularly at a time of an economic crunch.

“With the country facing a financial crisis largely due to the fallout of the pandemic, the government cannot be expected to offer further relief by reducing the interest component on the due repayments”, he stressed.

In terms of a Central Bank directive, all banks have been authorized to levy seven percent interest per annum on the total outstanding of loans and leases up to March 31, 2021, while finance companies can charge 11.5 percent.

Under the moratorium, credit facilities and leasing arrangements secured by key economic sectors hit by the outbreak of coronavirus were initially given a six-month grace period on repayments with effect from April 1, 2020. It was later extended by another six months as the worsening pandemic situation continued to cripple economic activity.

“The grace period related to payment of installments on the capital borrowed to fund loan and leasing facilities. Where the interest payments were concerned, a rate was agreed upon after a discussion with the stakeholders”, the official noted.

How can financial institutions, particularly finance companies, run their day-to-day operations and honor their commitments towards investors if there’s no return on borrowings?, he queried.

This can be done only if there is a situation where they don’t have to pay interest on investor holdings, he pointed out. “If they were to offer a return to one segment, while being denied their due revenue from the other, mounting losses are bound to push them towards insolvency”.

Financial institutions have to also absorb the cost of funds, as for example, a customer who has to repay a loan installment of Rs.10 million per month, holds back a repayment of Rs. 120 million during the one-year moratorium, the official explained.

With 50% of their funds disbursed as loans, the cash flow of these institutions have taken a big hit”, he said.

Under the circumstances, it is reasonable that at least the due interest on the borrowings are settled on time to ensure the survival of the financial sector in these difficult times, he said.

The tourism industry is still tottering. In this scenario, their loan installments are unlikely to roll in even after the grace period ends on March 31, 2021, he remarked.

He said that in the event of a natural disaster, the government can be expected to disburse funds to provide relief. However, a bail out on the interest payable by borrowers is too much to demand at a time of an economic downturn.

“We have received a plethora of complaints on this matter, and certainly understand that there are difficulties, but a perfect solution to please everybody is difficult to find”.

“Levying 11.5 percent interest on the total capital outstanding is unacceptable”, protested D. Nalaka Lankapurage, secretary of the All Ceylon Vehicle Leasing and Installment Payers Collective (ACVLIPC).

“We don’t mind paying reasonable interest on the monthly premium, but when it comes to the total capital outstanding, the commitment is too much to bear as business is slack across the board”, he complained.

With interest calculated on the basis of the total capital outstanding, even small-time borrowers are asked to pay Rs. 50,000 to Rs. 60,000 per month, which is next to impossible with business at a low ebb, he noted.

“Financial institutions even decline to give us a breakdown of the payments. When they demand, we are expected to duly pocket out with no questions asked”, Lankapurage asserted.

Many of these institutions have made billions of rupees in profits over the years. Can’t they offer us a degree of relief even at a time the pandemic has ripped apart life and livelihoods in the country?, he asked.

“We admit that financial establishments cannot give loans gratis. All what we are asking for is a reasonable rate of interest on the monthly premium; not on the total capital outstanding”, he continued.

Lankapurage said that those who have leased vehicles have to also shoulder the added burden of paying insurance and meeting running costs.

Members of the ACVLIPC staged a protest opposite the Presidential Secretariat recently against what they termed a “rip-off by banks and other financial institutions”.

A memorandum addressed to the President, which set out their grievances, was handed over to a Presidential Secretariat official during the agitation.



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Six nabbed with over 100 kg of ‘Ice’

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By Norman Palihawadane and Ifham Nizam

The Police Narcotics Bureau (PNB) yesterday arrested six suspects in the Sapugaskanda Rathgahawatta area with more than 100 kilos of Crystal Methamphetamine also known as Ice.

Police Media Spokesman, Deputy Inspector General of Police, Ajith Rohana told the media that the PNB sleuths, acting on information elicited from a suspect in custody had found 91 packets of Ice.

A man in possession of 100 kilos of heroin was arrested in Modera during the weekend and revealed that a haul of Ice had been packed in plastic boxes.

The PNB seized more than 114 kilos of Ice from the possession of a single drug network.

According to the information elicited from the suspects, more than 100 kilos of Ice were found.

The PNB also arrested six persons including two women with 13 kilos of Ice, during an operation carried out in the Niwandama area in Ja-Ela on Sunday.

DIG Rohana said the ice had been packed in small plastic boxes and hidden in two school bags.

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PM intervenes to iron out differences among coalition partners

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By Norman Palihawadane

Prime Minister Mahinda Rajapaksa yesterday said that he was confident that differences among the constituents of the SLPP coalition as regards the May Day celebrations and the next Provincial Council elections could be ironed out soon.

Leaders of all SLPP allied parties have been invited to a special meeting to be held at Temple Trees with the PM presiding on April 19.

Prime Minister Rajapaksa said it was natural for members of a political alliance to have their own standpoints and views on matters of national importance. “This is due to the different political ideologies and identities. It is not something new when it comes to political alliances world over. In a way, it shows that there is internal democracy within our alliance.

The PM said: “As a result of that the allied parties may express their own views on issues, but that does not mean there is a threat to the unity of the alliance. An alliance is more vibrant and stronger not when all the parties think on the same lines but when the member parties have different ideologies.”

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Thilo Hoffman remembered

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A copy of the book “Politics of a Rainforest: Battles to save Sinharaja” was handed over to Dominik Furgler, the Swiss Ambassador in Sri Lanka by the author of the book, Dr. Prasanna Cooray at the Swiss Embassy in Colombo last Tuesday, to be sent to the family of the late Thilo Hoffman in Switzerland.

Hoffman, a Swiss national, who made Sri Lanka his second home for six decades, was a pioneering environmental activist who led the battles to save Sinharaja from the front in the early 1970s, abreast with the likes of Iranganie Serasinghe, Kamanie Vitharana, Lynn De Alwis and Nihal Fernando of the “Ruk Rekaganno” fame. That was the era when the trees of Sinharaja were felled for the production of plywood by the then government. Hoffman was also a livewire of the Wildlife and Nature Protection Society (WNPS) for a long time. Hoffman died in 2014 at the age of 92.

The book includes a chapter on Thilo Hoffman.

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