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Parate Suspension: Sri Lanka’s debt recovery dilemma

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The Cabinet of Ministers is reported to have approved a temporary suspension of Parate Executions until 15 December 2024 aiming to alleviate the strain on small and medium-sized enterprises (SMEs) grappling with financial challenges.

Parate execution

‘Parate’ is a Dutch term which means immediate. It’s a non-court procedure.

In this process, banks can take possession of borrowers’ properties but cannot own them. If the properties aren’t sold, the bank gets them at a nominal price (usually at Rs.1,000.00), but they must sell them again to cover debts and refund any excess money to borrowers.

It has been reported that on February 26, 2024, the Cabinet of Ministers in Sri Lanka, at a meeting chaired by President Ranil Wickremesinghe, agreed to suspend the controversial Parate action, based on a proposal put forward by Justice Minister Dr. Wijeyadasa Rajapakshe.

Recovery laws

Banks, financial institutions, and lenders were forced to follow lengthy legal processes to recover funds they had lent. Thus, in 1990, legislatures introduced the Debt Recovery (Special Provisions) Act, the Recovery of Loans by Banks Act and Mortgage Act to streamline and speed up the debt recovery process. These laws not only define legal rules but also outline the required steps for legal actions. Additionally, the Civil Procedure Code guides the debt recovery process.

In some cases, borrowers might seek court injunctions to halt auctions initiated through Parate actions. The Act outlines a specific procedure (sections 5 to 15) that banks must follow to recover debts, known as “Parate execution.”

The Parate Action Procedure starts with a demand letter to the borrower, followed by a Parate Notice. The board of directors of the firm reviews and approves necessary documents, including translations into languages like Sinhala and Tamil. Notices about property auctions are published in newspapers and in the Gazette. Auctions follow and depending on the property’s status (vacant or occupied), actions like serving quit notices are taken to ensure compliance.

Loss of reputation of borrowers

When a “Parate Action” notice is published in the newspapers, it damages the borrower’s reputation, marking them as a defaulter. Banks use this powerful tool for loan recovery. SME owners and borrowers believe Parate action should be the last option, only chosen after all other recovery efforts fail.

However, according to a person called Selvarajah Thumilan, representing ‘Micro, Small and Medium Enterprises Chamber of Sri Lanka,’ banks were unwilling to engage in negotiations with borrowers for loan restructuring or rescheduling. Instead, they allowed loans to reach the Non-Performing Loan (NPL) level, enabling them to use Parate rights for quicker loan recovery.

On the other hand, from the Banks’ point of view, they turn to Parate action to protect the interests of their depositors when other methods prove ineffective. They argue that banks should be driven in the direction of economic development, safeguard public deposit and confidence, more flow of money without stagnating in the process of litigation in the recovery of their debts.

A banker pointed out Justice Nawaz’s recent decision in the Sunpack vs. DFCC case, which expands the scope of Parate execution. It includes not just director-mortgagors but also individuals who, though not directors, have used their property as loan security for the borrowing company. This broader interpretation of “borrower” is a modern and accommodating approach rather than a restrictive one.

Non-performing loans (NPLs)

Banks have a system for managing loan recoveries. Loans with arrears up to 30 days fall into Stage 1, those with arrears up to 60 days fall into Stage 2, and loans with arrears up to 90 days and beyond are categorized as Stage 3. When loans go unpaid for 90 days, banks must address the issue by first suspending accruing interest and then making provisions for doubtful debt. This process affects the profitability of the bank.

At this point banks use the authority, through a Board Resolution, to sell mortgaged property at public auction to recover the outstanding loan amount, interest, and associated costs. However, an amendment in 2011 specifies that no action shall be initiated for loans less than five million rupees. During default calculation, interest and penalties are not considered.

Third party properties

In November 2023, the Supreme Court made a significant ruling. It stated that properties pledged to a bank, not just by the borrower but also by a third party for the borrower’s loan, could be sold at an auction to recover the unpaid loan and interest under the Parate law.

This marks a departure from the Supreme Court’s previous stance that third-party mortgages are exempt from Parate execution, as seen in the case of Chelliah Ramachandran vs. Hatton National Bank (2006). However, the court made a distinction in Hatton National Bank Ltd vs. Samathapala Jayawardena (2007), emphasising that directors serving as guarantors for a company’s loan can be held liable, regardless of their status as principal borrowers.

The intentions of Parate law

A seasoned attorney, who has effectively overseen the recovery units of two prominent commercial banks, brings to light a critical perspective on the efficacy of Parate Execution. The intended purpose of introducing Parate Execution, as explained by the legal expert, is to circumvent potential liquidity challenges that banks might encounter when dealing with bad loans. This is particularly pertinent given the protracted nature of recovery through court proceedings.

Conversely, some contend that the introduction of the Parate law aimed to facilitate easier borrowing for small and medium-sized businesses in Sri Lanka. This perspective views it to streamline the loan recovery process for banks, which were initially reluctant to provide loans due to challenges in recovering them. Dr. Nandalal Weerasinghe, the Governor of the Central Bank, supports this argument, asserting that without the ability to employ Parate laws, banks might be hesitant to extend loans, potentially causing significant economic repercussions.

The reality of Parate law

However, the reality, as pointed out by the banker-lawyer, is that over 95% instances, banks have to acquire properties and this approach fails to generate cash inflow, rendering the intended solution to liquidity issues ineffective.

The issue is compounded when it comes to auctioning properties that are occupied. Potential bidders are discouraged from participating due to the additional legal complexities involved in evicting occupants. As a result, the selling bank is left with the property at a nominal price of Rs. 1,000.00, exacerbating the liquidity challenge.

The legal-banking expert also asserts that a blanket suspension of Parate Execution is not warranted across all sectors. Instead, he argues for a more targeted approach, emphasizing that only small and medium enterprises in the commercial and industrial sectors require such relief. The rationale behind this targeted relief is clear – the failure of these economic units has a cascading effect on employment and the supply of goods. Therefore, maintaining their operational continuity is crucial for overall economic stability.

Similarly, the lawyer advises against incorporating personal loans in the suspension of Parate Execution. Doing so would impede the recovery process from the crisis, introducing complexities that might obstruct the overall resolution. Essentially, a nuanced and strategic approach is necessary for the suspension of Parate Execution, ensuring it aligns with the specific needs of businesses and industries vital for economic health, without enabling certain personal borrowers to unduly exploit it.

The impact of Parate suspension

Selvarajah Thumilan has emphasised that in 2023, banks applied the Parate law in 1,140 cases, contradicting the figure of 557 cases reported by the Central Bank, which says about 38 billion were claimed from 557 people using Parate laws in the year 2023 and that account for only about 0.4 percent of total loans. He has said there were about Rs 1.4 trillion worth of non-performing loans (NPLs) and only 1.7 percent of those loans were subjected to Parate laws.

This implies that a significant portion of Non-Performing Loans (NPLs) lacks property collateral that can be sold within the current legal framework for recovery. These loans are typically disposed of with political influence, and over time, banks often must write them off.

(The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT University, Malabe. He is also the author of the “Doing Social Research and Publishing Results”, a Springer publication (Singapore), and “Samaja Gaveshakaya (in Sinhala). The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of the institution he works for. He can be contacted at saliya.a@sliit.lk and www.researcher.com)



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Features

The Easter investigation must not become ethno-religious politics

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Zahran and other bombers

Representatives of almost all the main opposition parties were in attendance at the recent book launch by Pivithuru Hela Urumaya leader Udaya Gammanpila. The book written by the PHU leader was his analysis of the Easter bombing of April 2019 that led to the mass killing of 279 persons, caused injuries to more than 500 others and caused panic and shock in the entire country. The Easter bombing was inexplicable for a number of reasons. First, it was perpetrated by suicide bombers who were Sri Lankan Muslims, a community not known for this practice. They targeted Christian churches in particular, which led to the largest number of casualties. The bombing of Sri Lankan Christian churches by Sri Lankan Muslims was also inexplicable in a country that had no history of any serious violence between the two religions.

There were two further inexplicable features of the bombing. The six suicide bombings took place almost simultaneously in different parts of the country. The logistical complexity of this operation exceeded any previously seen in Sri Lanka. Even during the three decade long civil war that pitted the Sri Lankan military against the LTTE, which had earned international notoriety for suicide attacks, Sri Lanka had rarely witnessed such a synchronised operation. The country’s former Attorney General, Dappula de Livera, who investigated the bombing at the time it took place, later stated, upon retirement, that there was a “grand conspiracy” behind the bombings. That phrase has remained central to public debate because it suggested that the visible perpetrators may not have been the only planners behind the attack.

The other inexplicable factor was that intelligence services based in India repeatedly warned their Sri Lankan counterparts that the bombings would take place and even gave specific targets. Later investigations confirmed that warnings were transmitted days before the attacks and repeated again shortly before the explosions, yet they were not acted upon. It was these several inexplicable factors that gave rise to the surmise of a mastermind behind the students and religious fanatics led by the extremist preacher Zahran Hashim from the east of the country, who also blew himself up in the attacks. Even at the time of the bombing there was doubt that such a complex and synchronised operation could have been planned and executed by the motley band who comprised the suicide bombers.

Determined Attempt

The book by PHU leader Gammanpila is a determined attempt to make explicable the inexplicable by marshalling logic and evidence that this complex and synchronised operation was planned and executed by Zahran himself. This is a possible line of argumentation in a democratic society. Competing interpretations of public tragedies are part of political discourse. However, the timing of the intervention makes it politically more significant. The launch of the PHU leader’s book comes at a critical time when the protracted investigation into the Easter bombing appears to be moving forward under the present government.

The performance of the three previous governments at investigating the bombing was desultory at best. The Supreme Court held former President Maithripala Sirisena and several senior officials responsible for failing to act on prior intelligence and ordered compensation to victims. This judicial finding gave legal recognition to what victims had long maintained, that there was a grave dereliction of duty at the highest levels of the state. In recent weeks the investigation has taken a dramatic turn with the arrest and court production of former State Intelligence Service chief Suresh Sallay on allegations linked directly to the attacks. Whether these allegations are ultimately proven or disproven, they indicate that the present phase of the investigation is moving beyond negligence into possible complicity.

This is why the present moment requires political sobriety. There is a danger that the line of political division regarding the investigation into the Easter bombing can take on an ethnic complexion. The insistence that the suicide bombers alone were the planners and executors of the dastardly crime makes the focus invariably one of Muslim extremism, as the suicide bombers were all Muslims. This may unintentionally narrow public attention away from the unanswered questions regarding intelligence failures, possible political manipulation, and the allegations of a broader conspiracy that remain under active investigation. The minority political parties representing ethnic and religious minorities appear to have realised this danger. Their absence from the book launch was politically significant. It suggests an unwillingness to be drawn into a narrative that could once again stigmatise an entire community for the crimes of a handful of extremists and their possible handlers.

Another Tragedy

It would be another tragedy comparable in political consequence to the havoc wreaked by the Easter bombing if moderate mainstream political parties, such as the SJB to which the Leader of the Opposition belongs, were to subscribe to positions merely to score political points against the present government. They need to guard against the promotion of anti-minority sentiment and the fuelling of majority prejudice against ethnic and religious minorities. Indeed, opposition leader Sajith Premadasa in his Easter message said that justice for the victims of the 2019 Sri Lanka Easter Sunday attacks remains a fundamental responsibility of the state and noted that seven years on, both past and present governments have failed to deliver accountability. He added that building a society grounded in trust and peace, uniting all ethnicities, religions and communities, is vital to ensure such tragedies do not occur again.

Sri Lanka’s post war history offers too many examples of how unresolved security crises become vehicles for majoritarian mobilisation. The Easter tragedy itself was followed by waves of anti-Muslim suspicion and violence in some parts of the country. Responsible political leadership should seek to prevent any return to that atmosphere. There are many other legitimate issues on which the moderate and mainstream opposition parties can take the government to task. These include the lack of decisive action against government members accused of corruption, the passing of the entire burden of rising fuel prices on consumers instead of the government sharing the burden, and the failure to hold provincial council elections within the promised timeframe. These are issues that touch the daily lives of citizens and the health of democratic governance. They offer the opposition ample ground on which to build credibility as a government in waiting.

The search for truth and justice over the Easter bombing needs to continue until all those responsible are identified, whether they were direct perpetrators, negligent officials, or political actors who may have exploited the tragedy. This is what the victim families want and the country needs. But this search must not be turned into a partisan and religiously divisive matter such as by claiming that there are more potential suicide bombers lurking in the country who had been followers of Zaharan. If it is, Sri Lanka risks replacing one national tragedy with another. coming together to discredit the ongoing investigations into the Easter bombing of 2019 is an unacceptable use of ethno-religious nationalism to politically challenge the government. The opposition needs to find legitimate issues on which to challenge the government if they are to gain the respect and support of the general public and not their opprobrium.

by Jehan Perera

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China’s new duty-free regime for Africa: Implications for Global Trade and Sri Lanka

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Image courtesy The Global Times

The new duty-free regime for Africa, announced by Chinese President Xi Jinping in February, is the most generous unilateral nonreciprocal trade concession offered by any country to developing countries since the beginning of the modern rule based international trading system.

Yet, it is a clear violation of the cornerstone of the multilateral trade law, the Most-Favoured-Nation (MFN) principle.

Hence, its implications on developing countries, without duty-free access to China, will be extremely negative. Sri Lanka is one of the few developing countries without duty-free access to China.

On 14 February, 2026, Chinese President Xi Jinping announced that China will grant zero-tariff treatment to 53 African nations, effective 01 May, 2026. Under this new unilateral policy initiative, China would eliminate all import tariffs on all goods imported from all the countries in Africa, except Eswatini. China already enforces a zero-tariff policy for 33 Least Developed Countries (LDCs) in Africa. Now this policy would be extended to non LDCs as well. This policy initiative clearly aims at reducing the continuously expanding trade deficit between China and Africa. In 2024, China’s trade surplus against Africa was recorded at US $ 61 billion.

This trade initiative, a precious gift amidst ongoing global trade tensions, is the most generous unilateral nonreciprocal trade concession given by any country to developing countries, since the beginning of the modern rule based international trading system.

Though this landmark announcement has far-reaching implications on global trade, as much as President Trump’s “Liberation Day” tariffs, it was almost overlooked by the global media.

Implications for Global Trade

This Chinese policy initiative, though very generous, is a clear violation of the Most-Favoured-Nation (MFN) principle and the “Enabling Clause” of the International Trade Law. The MFN principle is the cornerstone of the multilateral trading system under the World Trade Organisation (WTO) and is enshrined in Article I of the General Agreement on Tariffs and Trade (GATT). It mandates that any trade advantage, privilege, or immunity granted by a WTO member to any country must be extended immediately and unconditionally to all other WTO members. Though, the GATT “Enabling Clause” allows developed nations to offer non-reciprocal preferential treatment (lower tariffs) to developing countries without extending them to all WTO members, this has to be done in a non-discriminatory manner. By extending tariff concessions only to developing countries in Africa, China has also breached this requirement.

This deliberate violation of the MFN principle by China occurs less than 12 months after the announcement of “Liberation Day” tariffs by President Trump, which breached Article I (MFN) and Article II (bound rates) of the GATT. However, it is important to underline that the objectives of the actions by the two Presidents are poles apart; the US objective was to limit imports from all its trading partners, and China’s objective is to increase imports from African countries.

Though the importance of the MFN principle of the WTO law had eroded over the years due to the proliferation of preferential trade agreements and unilateral preferential arrangements, the WTO members almost always obtained WTO waivers, whenever they breached the MFN principle. Now the leaders of the main trading powers have decided to violate the core principles of the multilateral trading system so brazenly, the impact of their decisions on the international trading system will be irrevocable.

Implications for Sri Lanka

China’s unilateral decision to provide zero-tariff treatment to African countries will have a strong adverse impact on Sri Lanka. Currently, all Asian countries, other than India and Sri Lanka, have duty-free access, for most of their exports, into the Chinese market through bilateral or regional trade agreements, or the LDC preferences. Though Sri Lanka, India and China are members of the Asia Pacific Trade Agreement (APTA), preferential margins extended by China under APTA to India and Sri Lanka are limited.

The value of China’s imports from Sri Lanka had declined from US$ 650 million in 2021 to US$ 433 million by 2025. However, China’s exports to Sri Lanka increased significantly during the period, from US$ 5,252 million to US$ 5,753 by 2025. This has resulted in a trade deficit of US$ 5,320 million. Sri Lanka’s exports to China may decline further from next month when African nations with duty-free access start to expand their market share.

Let me illustrate the challenges Sri Lanka will face in the Chinese market with one example. Tea (HS0902) is Sri Lanka’s third largest export to China, after garments and gems. Sri Lanka is the largest exporter of tea to China, followed by India, Kenya and Viet Nam. During the last five years the value of China’s imports of tea from Sri Lanka had declined significantly, from US$76 million in 2021 to US$ 57 million by 2025. Meanwhile, imports from our main competitors had increased substantially. Most importantly, imports from Kenya increased from US$ 7.9 million in 2021 to US$ 15 million in 2025. For tea, the existing tariff in China for Sri Lanka is 7.5% and for Kenya is 15%. From next month the tariff for Kenya will be reduced to 0%. What will be its impact on Sri Lanka exports? That was perhaps explained by a former Ambassador to Africa, when he urged Sri Lankan exporters to “leverage duty free access from Kenya” to expand their exports to China!

(The writer is a retired public servant and a former Chairman of WTO Committee on Trade and Development. He can be reached at senadhiragomi@gmail.com)

by Gomi Senadhira

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Daughter in the spotlight …

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Jeevarani Kurukulasuriya was a famous actress and her name still rings a bell with many. And now in the spotlight is her daughter Senani Wijesena – not as an actress but as a singer – and she has been singing, since the age of five!

The plus factor is that Senani, now based in Australia, is also a songwriter, plays keyboards and piano, dancer, and has filmed and edited some of her own music videos.

Says Senani: “I write the lyrics, melody and music and work with professional musicians who do the needful on my creations.”

Her latest album, ‘Music of the Mirror’, is made up of 16 songs, and her first Sinhala song, called ‘Nidahase’, is scheduled for release this month (April) in Colombo, along with a music video.

‘Nidahase’,

says Senani, is a song about Freedom … of life, movement, love and spirit. Freedom to be your authentic self, express yourself freely and Freedom from any restrictions.

In fact, ‘Nidahase’ is the Sinhala translated version of her English song ‘Free’ which made Senani a celebrity as the song was nominated for a Hollywood Music in Media Award in the RnB /Soul category and reached the Top 20 on the UK Music weekly dance charts, as well as No. 1 on the Yes Home grown Top 15, on Yes FM, for six weeks straight.

Senani went on to say that ‘Nidahase’ has been remixed to include a Sri Lankan touch, using Kandyan drums and the Thammattama drum, with extra music production by local music producer Dilshan L. Silva, and Australia-based Emmy Award winning Producer and Engineer Sean Carey … with Senani also in the scene.

The song was written (lyrics and melody) and produced by Senani and it features Australian musicians, while the music video was produced by Sri Lanka’s Sandesh Bandara and filmed in Sri Lanka.

First Sinhala song scheduled for release this month … in Colombo

Senani’s music is mostly Soul, Funk and RNB – also Fusion, using ethnic sounds such as the tabla, sitar, and sarod – as well as Jazz influenced.

“I also have Alternative Music songs with a rock edge, such as ‘New Day’, and upcoming releases ‘Fly High’ and ‘Whisper’“, says Senani, adding that she has also recorded in other languages, such as Hindi and Spanish.

“As much of my fan base are Sri Lankans, who have asked me to release a song in the Sinhala language, I decided to create and release ‘Nidahase’ and I plan to release other original Sinhala songs in the future.

Senani has a band in Australia and has appeared at festivals in Australia, on radio and TV in Australia, and Sri Lanka.

She trained as a vocalist, through Sydney-based Singing Schools, as well as private tuition, and she has 5th Grade piano music qualifications.

And this makes interesting reading:

“I graduated from the University of Newcastle in Australia with a Bachelor of Medicine and I work part time as a doctor (GP) and an Integrative Medicine practitioner, with a focus on nutrition, and spend the rest of the time dedicated to my music career.”

Senani hails from an illustrious family. In addition to her mum, Jeevarani Kurukulasuriya, who made over 40 films, including starring in the first colour movie ‘Ranmuthu Duwa’, her dad is Dr Lanka Wijesena (retired GP) and she has two sisters – all musical; one is a doctor, while the other is a dietitian/ psychotherapist.

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