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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 1584

Sri Lanka: Recovery of Loans by Banks (Amendment) Act to increase floor for parate executions

By Ashwin Hemmathagama – Our Lobby Correspondent
Colombo, 07 January, (

Speaker Chamal Rajapaksa presided yesterday (January 6, 2011) when Parliament met at 1pm. After presentation of papers and responding to oral questions, House took up the second reading of the Recovery of Loans by Banks (Special Provisions) (Amendment) Bill, which was passed without a vote.

Presenting the Bill to the Parliament, Senior Minister of International Monetary Co-operation, Dr. Sarath Amunugama said: “We have clearly stated our intention to bring this amendment. With the insertion of the new section 5A , the Recovery of Loans by Banks (Special Provisions) (Amendment) Act No 4 of 1990 will allow banks to resort to *parate execution only if the principle sum borrowed is over Rs.5 million"

The floor of Rs. 5 mn imposed excludes any interest accrued or penalties imposed thereon. This is brought as a result of the requests made by numerous small scale borrowers who ran into financial difficulties due to the financial crisis. Therefore up to Rs.5 mn all cases are mandated to follow the normal judiciary process.

"The question is not about parate execution but about the entire banking system. We all can remember late N.U. Jayawardena campaigned to protect the national banking system. He brought some proposals including the parate execution and establishment of commercial courts. The financial system is important to our day-to-day functions, which is like a human body that has interconnections among all organs for the body to function well,"

Meanwhile Chief Opposition Whip John Amaratunga (MP – UNP) issuing notice on the Secretary General of Parliament suggested amending the proposed section 5A by deleting the words 5 million and substituting therefore the words fifty million in section (1) and (2) thereof. MP also proposed to add another proviso at the end of the proviso in section 5A of the amendment to read as “Provided also that these provisions shall apply to all pending and or proposed actions by any Bank.”

"If the floor is raised as requested by the United National Party, the entire banking system will get further complicated. We can see from the American market, that if the banking system collapse entire financial sector will collapse. Based on the instructions issued by President Mahinda Rajapaksa last year we have increased loan disbursements by 22%,"

"Doing Business Index is another important aspect where we are listed at the 130 position. But our target is to get listed at 30th pace by 2016. Please refer to yesterday’s edition of the Guardian newspaper. (See - It says Colombo Stock Exchange is the best performing stock exchange in the world. "

"Take a look at how many IPOs are coming up, which is good. Next year we are targeting a 9% economic growth. So, we need to fine tune the financial system to meet this target. We are trying to enhance the knowledge and awareness on commercial law. We are trying to give some relief but not with the objective of penalising. But please remember that banks are in a position to provide reliefs without resorting to parate execution.”

Ravi Karunanayake (MP – UNP) in response said: “By bringing this Recovery of Loans by Banks (Special Provisions) (Amendment) Bill you are securing the privileges enjoyed by banks but it does not speak about the borrowers. According to you the economy is running well and so you are bringing such amendments. But the fact is the economy is in such condition where such laws are necessary to do recoveries. What you are attempting to do is fortify the banks by making the parate executions easy. Why don’t you make it Rs.50 million which is timely and matches the today’s market or index it according to the inflation"

"Look at the Ceylon Petroleum Corporation (CPC) it has lost Rs.18 million last year. These losses have an impact over the macro economy. Another example is Mihin Air. The government has invested Rs.5 billion and while the two SOEs have reported losses of Rs. 4.5 bn."

"Minister in charge of the CEB is making professional approach to resurrect the establishment, which we all must commend. But according to him there are some Rs.150 billion long-term and Rs.75 billion medium term debts leading to a loss of Rs.20 billion a year. This basically shows that CEB is bankrupt,"

"Paddy Marketing Board is another example, which was closed in 2000 by then Minister D.M. Jayaratne during Chandrika’s regime. During Chandrika’s period she sold bread at Rs.3.50 where Sathosa went bankrupt burdened with a loss of Rs.15,800 million during a very short period. Is this a healthy situation for the economy?”

Minister of Water Supply and Drainage Minister and Chief Government Whip of Parliament Dinesh Gunawardena said: “This amendment enables measures to be taken against those who have not settled their loans under ordinary law. Today, the banking sector has been enhanced. It is we who peopalised the Bank of Ceylon and it is we who established the People's Bank. This is an appreciable amendment."

"The Opposition wants the Parate Execution limit increased to Rs.50 mn. But when I made a request on January 30, 1990 for the increase the floor applicable for Parate Execution to Rs.150,000, Ranil Wickremesinghe objected. So today we have come a long way and we have no idea of bankrupting the banks."

"Under this legislation, farmers and people engaged in self-employment will find relief. People should not be afraid of taking loans if they settle them properly. We have to provide relief to those who attempt to develop themselves. Banks are also protected. See what happened to Seylan Bank? The people are unaware of what happened to it until it went bankrupt. The Central Bank intervened and protected the bank as well as depositors. With this amendment, the circulation of black money will be minimized and will also open the gates for investors. My father, the late Philip Gunawardena had to go home when he attempted to establish the People's Bank. Under these amendments, the people will get more relief.”

Chandima Weerakkody (MP - UPFA): “I regret the fact that the opposition speaks with ignorance pertaining to regulations on bank loans. It is the UNP which presented this Bill to the House. We must be happy that the President initiated this Bill today. He believed that the Bank Loan Bill should be amended in a people-friendly manner. He said that the public should be able to obtain loans without fear and that the necessary background should be made for it. The interest rate which was about 22% in the past, has now decreased to 11%. The era that we will be providing loans for an interest rate of a single digit has now dawned."

"This initiative will also help the people invest more on tourism. The tourism sector is rapidly growing and necessary measures have been taken to provide facilities for its promotion. It was seen that the Unawatuna beach was like Pettah on the 31st night with such a large number of tourists.”

* Parate execution is a term that defaulting customers of banks fear most. “Parate” is a Dutch term which means “immediate” and “parate execution” basically means a debt recovery process outside the normal law. The moment a “parate resolution” is published in the newspapers the borrower whose name is mentioned in the newspaper notice becomes even socially ostracized.

- Asian Tribune -

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