Friday Nov 15, 2024
Friday Nov 15, 2024
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State Minister of Finance
Ranjith Siyambalapitiya
State Minister of Finance Ranjith Siyambalapitiya yesterday announced plans to suspend Parate execution temporarily and revealed that a Cabinet paper outlining it would be presented for approval next week.
The move comes in response to ongoing discussions and concerns regarding the impact of Parate laws on small and medium-sized enterprises (SMEs).
Speaking in Parliament, he said the move is taken to protect the SMEs from the adverse impacts of the ongoing economic crisis.
Siyambalapitiya highlighted that the Government has taken many measures to support the SMEs affected by the economic distress, whilst pointing out that the Central Bank had already issued 15 circulars aimed at providing relief to affected SMEs.
“Parate powers, embedded within banking regulations, are designed to protect the stability of the banking system. However, amidst the economic challenges faced by SMEs, there have been calls for a review of these powers to prevent potential adverse effects on businesses,” he said while responding to questions during the adjournment debate in Parliament.
Siyambalapitiya assured that the proposed suspension of Parate actions would be temporary and subject to confirmation of the banking system’s stability.
“The measure seeks to provide a reprieve for struggling SMEs while ensuring the continued stability of the financial sector,” he said.
Separately banking industry analysts told the Daily FT that the selective suspension till December 2024 will be only to those enterprises which were viable with performing loans up to COVID-19.
Micro and SMEs for months have been agitating for proper debt relief after the Central Bank in 2023 lifted a four-year suspension of parate action due to multiple crises starting from the Easter Sunday attacks, COVID-19 followed by political and economic crisis.
Last week a Daily FT co-hosted webinar, MSME activists demanded breathing space via immediate suspension of parate action temporarily and offer relief via debt restructuring, reduction in interest, write offs, longer repayment period.
At the same webinar, CBSL Governor Dr. Nandalal Weerasinghe said MSMEs had been supported extensively since 2019. He revealed that the value of loans which got relief/restructured was Rs. 5.8 trillion. He said in 2023 the number of actions were only 557 involving loans worth Rs. 38 billion which was 0.4% of total credit and 2.7% of impaired loans. With banks asked to set up Business Revival Units, he said over 2,500 enterprises with Rs. 85 billion in debt had been supported via this initiative.
Dr. Weerasinghe also categorically said suspending parate rights will not help MSME recovery.
”We are engaging with SMEs who need to be supported with a lot of measures by CBSL and the Government to manage through difficult times. Anti-parate activists are different to me. Suspending parate rights will not help MSME recovery,” Dr. Weerasinghe said adding that the latter will only support anti parate activists who had borrowed but unable to service and intend to default or had turned to wilful defaulters.
“Parate is used only as a last resort to deal with wilful defaulters and unviable borrowers. Parate is the legal means for banks to recover overdue loans and prevent mismanagement of bank financing and diversion of business funds to other purposes loan repayment,” charged Dr. Weerasinghe.
It was also revealed that new guidelines to make Business Revival Units more successful and effective will be announced following stakeholder consultation. Additionally, the ADB funded-National Credit Guarantee Institution will extend support to viable MSMEs.
