By Sulochana Ramah Mohan
After Sunday Ceylon Today published a news feature titled ‘SMEs Allege Banks and Leasing Companies are Exploiting the Masses: Lament Lack of Intervention from the Central Bank of Sri Lanka,’ Central Bank Governor Ajith Nivard Cabraal agreed to respond to the series of questions posed to him. A majority of the questions were based on the allegations made by the SMEs that were emailed to the CBSL Governor.
Following are excerpts:
The public accuses the CBSL’s Parate Law in Acts Nos. 3 and 4 of 1990 of “presenting this act for the recovery of loans by banks for the development of the Sri Lankan economy,” but this is not the case. It has always been harmful, and people are calling for the CBSL to repeal it. This law allows banks to seize ordinary people’s movable and immovable assets. This law also prevents a deprived person from seeking legal help to reach an amicable agreement to settle the loan or lease issues. The SMEs claimed that both private and state banks are wealthy, but that their customers are ignored. Why is CBSL only interested in opening doors and passing laws that benefit banks, rather than assisting them?
A. Contrary to what you say, CBSL always takes a balanced approach when dealing with lenders and borrowers in the financial system. The main principle is that if a person borrows, he/she must repay. If a person is in difficulty, some relief could be given, but that has to be done without compromising the financial institutions as well. Remember, financial institutions rely on public deposits, which they lend to various borrowers including industries, farmers and the SME sector. What would be the plight of the depositors if all loans granted by banks were defaulted on? That is why some safeguards must be assured so that borrowers would be encouraged to repay. In my view, in the execution of the Parate Law, banks must be required to justify their decision of seizing an immovable asset, to an independent third party who should also be convinced that the delinquent borrower has been given every opportunity to repay, but has not been able to do so, and therefore the seizure of the property is fair and justifiable. We intend to propose that amendment to the law shortly.
As of today, Vietnam’s export revenue gap is 30 times greater than Sri Lanka. Isn’t the Parate Law one of the reasons why Sri Lanka does not have any dollars right now, because it does not boost local trade and businesses? Why are the CBSL Economists unable to recognise this problem even now? Does the CBSL accept responsibility for all of the current dollar shortage problems that the public is experiencing as a result of allowing banks to kill dollar-generating industries?
A. Sri Lanka’s imports during the year 2021 were a massive US$ 21 billion and that doesn’t suggest any shortage of dollars. In fact, that figure was even more than in 2019 which included vehicle imports too. Saying that banks have killed dollar-generating industries is not correct, and such statements indicate a complete lack of understanding of the economic realities. If banks have killed dollar-generating industries with the support of the CBSL, how did Sri Lanka record its highest historical value of exports last year? How did Sri Lanka import US$ 3.8 billion dollars’ worth of consumable items last year? That itself shows that there have been substantial forex inflows, although the demand for imports has also increased significantly. Attempting to link the Parate Law to an erroneous and perceived reduction in local trade and business is completely unfounded and the annual growth of around 4% in 2021 even without the contribution from tourism, completely contradicts your claim.
Is the CBSL even aware that 190 suicides take place per year due to excessive pressure exerted by lenders for failing to repay loans? It was reported in the Media including the BBC. Isn’t this catastrophe due to poor monitoring of financial institutions and banks?
A. Since you make this suggestion, I would like to see the data that specifies or suggests that 190 suicides have taken place due to excessive pressure exerted by lenders. It’s sad that random and unsubstantial statistics are sometimes quoted without mentioning sources and that practice is not a good one. If credible information is provided, the CBSL Research Team could examine the background of such data and comment.
Financial institutions and banks are still confiscating and auctioning repossessed vehicles despite the CBSL’s circulars and guidelines? These auctions are gazetted and published in newspapers daily, which CBSL has turned a blind eye to. Why so?
A. The CBSL has very clearly directed that financial institutions should not repossess movables or auction such movables if the repayment has been delayed due to the pandemic. That direction is very firmly implemented by the Central Bank. Even recently, some supposedly aggrieved persons met Central Bank officials, and such position was reiterated. In fact, those persons were asked to send a list of instances where the CBSL instructions have not been followed by any financial institution. They were also assured that the CBSL would be dealing with such institutions firmly. However, to this date, the CBSL has not received any such list.
A newspaper, on 21 June 2020, published regarding 50 CBSL senior officers who have been drawing salaries, foreign tours etc. from banks and financial institutions as bribes. This was exposed by an internal officer. What action did the CBSL Governor take against these institutions and what is the progress of the cases against the corrupt officers?
A. I am informed that the newspaper has published a list without naming any person and that the CBSL has requested the Bribery Commission to investigate the general allegations. If there is any truth in those allegations, the Bribery Commission can take whatever necessary action and we would not interfere in the process at all. Until such time there is a determination by the Bribery Commission that there has been wrongdoing, it would be grossly unfair to assume that those officials are corrupt. Meanwhile, if there is any specific allegation against any CBSL official, the CBSL management will not hesitate to investigate. Recently, the CBSL had received some complaints that some confidential information has been divulged by some officials to outsiders, and those allegations are also being investigated. As you know, there are accusations against various persons at various times, but unless those are substantiated with proper evidence and confirmed by the relevant law enforcement authorities, it would be unfair to arrive at conclusions.
The public accuses the CBSL that Sunil Jayawardena was killed for raising his voice against the leasing companies. Yet, the CBSL has paved the way and allowed finance and leasing companies to repossess vehicles using underworld members. What steps has the CBSL taken to stop such illegal repossession of vehicles by the leasing companies? Who can we complain to?
A. While the CBSL is naturally sorry about the murder of Sunil Jayawardena, that incident has no connection to the CBSL. In fact, that alleged company was also not a registered financial institution. You are obviously aware that the CBSL has repeatedly announced the names of the registered financial institutions and if people bypass CBSL’s advice and transact business with other entities, they obviously do so knowingly and deliberately, and take an additional risk. Sri Lanka’s Penal Code is very clear, and when any criminal activity takes place anywhere in the country, every person has a constitutional right to complain to the relevant law enforcement authorities in accordance with the law.
Almost all finance and leasing companies do not hand over CR extracts of vehicles if there are any defaults in payments to obtain the revenue licence. What powers has the CBSL granted to banks and financial institutions to prevent an individual from paying taxes to the Government and obtaining a licence? Aren’t these punishable offences? If not, what action have you taken against them?
A. Financial institutions are in the business of lending and collecting repayments. In instances where a withholding tax or a value added tax is imposed by the Government on financial institutions, they will collect such taxes from the transaction and remit it to the Inland Revenue Department. If such laws are not followed, action could be taken against the violators according to the law.
Furthermore, the sole purpose of leasing the vehicle is lost because the borrower is unable to obtain the revenue licence. This further restricts the income of the owners. Because the lender has only lent 60 per cent of the vehicle’s value, the down payment and any rentals paid are also with the lender. Therefore, repossession of the item is a profitable venture for the lender in the event of non-payment. Isn’t this a debt trap? Aren’t there laws in place to prevent these unfair practices from occurring?
A. A leasing transaction is carried out by the leasing company (as the lessor) and a lessee (as the borrower) after reaching an agreement. Such agreements will provide for the value of the lease to be granted and other terms which have to be followed by both parties. At the same time, the general provisions of the legal system in the country has to be followed while the leasing laws also have to be adhered to. The total value of leases in the country is many billions of rupees and hundreds of thousands of leases are presently in operation. Leasing is also a very popular financial instrument among the many lessors and lessees. While there are hundreds of thousands of transactions that take place in a regular manner, a few transactions end up in problems due to some reason or another. But, it is those unsuccessful transactions unfortunately that make the news.
How many complaints has the Financial Consumer Relations Department (FCRD) received so far? How many cases have been resolved and how many remain unresolved? The public claims that CBSL closes each case after forwarding the complainant’s letter to the lender. Is this the only thing a citizen can expect from the CBSL?
A. I haven’t received any complaints from the public that the CBSL closes cases after merely forwarding a complainant’s letter to the lender. On the contrary, I have received many compliments from complainants that their grievances have been satisfactorily attended to. If you know of any specific instances to the contrary, please forward such instances to my office, and I will have those specially looked into.
When Sri Lanka is on a borrowing spree from other countries, how does a private bank of Sri Lanka afford to lend to people in Bangladesh by establishing a bank like Commercial Bank? This bank has been adjudged the most sustainable bank in Bangladesh. How many dollars have these institutions withdrawn from the country? Is it ethical to ask exporters to bring in dollars to ease the forex crisis, when certain banks and financial institutions withdraw dollars from our country to lend to citizens of another country? What guarantee can the CBSL give that these profits made from that country will be brought back to Sri Lanka?
A. When a branch of a bank is established in any part of the world, such institution will be guided and directed by the Monetary Authority in those jurisdictions. At the same time, the bank branch also has to comply with laws of the country where the Bank was first registered. That means they have to follow both laws and regulations. Many foreign banks lend money to our citizens and companies in this globalised business and banking environment. In the same manner, we should expect Sri Lankan banks which are operating in other countries also to do likewise.
There is a group called ‘Magen Ratata Sangvidanaya’ whose land, houses and vehicles have been auctioned and whose businesses are facing losses. They protested in front of the CBSL recently. The CBSL said they have given a moratorium only to those from 2020 hit by the pandemic and have extended it to March 2022. But the dollar crisis and financial crisis began from the time of the Easter Sunday bombings. The moratorium is also another loan above the existing loan, and it serves no purpose to the borrower. Can the CBSL draw a more human-friendly strategy to safeguard the Sri Lankans traders? Are you willing to meet the group ‘Magen Ratata Sangvidanaya’ that met Ceylon Today for a dialogue?
A. The Central Bank has always opened its doors to any person who feels that a financial institution is not following Central Bank directions, to bring such instances to our notice. There is no need for special representatives to protest or shout insults or humiliate our staff. The Central Bank has also provided over Rs 4,100 billion in moratoria and Rs 168 billion in special Saubagya loans which have held the fabric of business together in the face of Covid-19. It is disheartening to note that such extraordinary initiatives have not even been acknowledged by some persons, let alone appreciated. I think it’s time that all who relish in finding fault with the CBSL also realise the two sides of the stories and appreciate the steps taken by our institution, without jumping to conclusions that the CBSL intentions are not people-friendly.