- Issue pre-emptive letter ruling out future concessions
- Central Bank denies such a practice
By Madhusha Thavapalakumar
Several state banks in Sri Lanka have mandated loan applicants to sign a letter agreeing not to request for loan concessions that might be provided by the Government in the future for those loans.
As uncovered by an investigation carried out by The Sunday Morning Business, National Savings Bank (NSB) and People’s Bank have issued such a letter to loan applicants, and several leasing companies too necessitate their applicants to sign a similar letter.
From the queries made by us from NSB under the guise of a loan applicant last week, it was confirmed that the bank issues a standard letter to customers under the title “Declaration of consent to recover loan instalments”, along with other documents.
The letter, seen by The Sunday Morning Business, in the first half obtains the consent of the loan applicant to recover loan instalments on a regular basis. However, the second half of the letter reads: “I/we hereby declare that I/we will not request for loan concessions that have been announced by the Government for this loan scheme.”
Based on the details obtained from the bank, the second half of the letter effectively rules out any opportunity for a new loan applicant to request any concessions that might be announced by the Government under circumstances such as a pandemic-induced lockdown or following incidents such as the Easter Sunday attacks.
Meanwhile, similar queries made by us from People’s Bank revealed that it too issues similar letters to its loan applicants with minor changes in the format.
Following this, we contacted the Central Bank of Sri Lanka (CBSL), the regulator of local banks, to determine whether the issuance of a letter of this nature has been permitted by them.
Speaking to The Sunday Morning Business, CBSL Deputy Governor H.A. Karunaratne stated that NSB obtained the said letter of consent only from the customers who obtained new loans during the months from April to May.
“The concessions granted to Covid-19-hit businesses, including self-employment and individuals indicated in Circular No. 5 of 2020, were applicable only for the performing and non-performing loans which prevailed as at 25 March 2020. At present, NSB is not obtaining the said document from the customers,” Karunaratne stated.
Speaking further, he stated that the Central Bank has not received any complaints with regard to this letter from customers of NSB.
However, NSB confirmed that even as at 1 September 2020, the bank was issuing such letters to its new loan applicants. Following this, we spoke to CBSL again but they were adamant that NSB is not issuing these letters anymore.
Since the Easter Sunday incidents on 21 April last year, the current Government and previous Government had announced several loan relief measures and concessions including moratoriums on different occasions. Often these relief measures faced delays in materialising as most banks were reluctant to come on board. Even after agreeing to provide relief, many banks were accused of turning down a majority of loan applications.
For example, a working capital soft loan that was announced last May in the wake of disruptions caused to businesses due to the Easter Sunday incidents had only five banks on board even as of mid-June.
Following the local spread of Covid-19 in Sri Lanka, the Government announced another set of financial assistance for businesses and individuals which included moratoriums on loan payments. On 24 March 2020, CBSL, issuing a circular, announced a moratorium until 30 May on loans granted to all private sector non-executive employees, a three-month moratorium for all personal loans and leasing rentals of a value less than Rs. 1 million, and a six-month debt moratorium for five selected sectors which was extended by another six months later in June.