1 January 2024 12:20 am Views - 181
The Central Bank recently asserted that banks’ right of parate execution must not be amended in favour of an
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Dr. Nandalal Weerasinghe |
insignificant number of “loud” debt evaders, while putting millions of “silent” depositors in chaos along with the stability of the banking sector.
"As the Central Bank, we believe that parate execution is more important for safeguarding the public's deposits than financial system stability. This is because the loans disbursed for various industries are provided from the general public’s deposits. Therefore, when someone evades debt, the depositors bear the loss primarily, more than the bank," CB Governor Dr. Nandalal Weerasinghe told reporters in Colombo last Friday.
The Supreme Court recently, in a landmark ruling, unanimously held that properties mortgaged to banks, not only by an actual borrower but also by a third party for the loan granted to the actual borrower, can be sold at an auction to recover the unpaid loan and interest thereon.
This move has fueled debate on the need to amend the right of parate execution of banks, as some debtors continue to raise concerns on various platforms, drawing attention.
However, Dr. Weerasinghe pointed out that banks only executed parate measures on 557 individuals during the first 11 months of the year to recover loans. This constitutes an insignificant number of debtors despite the “loud” opposition.
“Over past 11 months, parate execution was activated only against only 557 persons, and a sum of Rs.38 billion had been collected. This looks like a massive amount in absolute terms, but this only makes up 0.4 percent of overall credit disbursed by the banking sector. Currently, Stage 3 impaired loan ratio is 13 percent or Rs.1.4 trillion. So it’s only 2.7 percent of Stage 3 impaired loans which was recovered through parate execution,” he elaborated.
Central Bank chief shared that the Rs.16 trillion deposits from the general public constitute 81 percent of the overall liabilities of the banking system. He specifically pointed out that banks extend long-term credit using short-term deposits. Consequently, he emphasised that it would be unfair for depositors to forgive or provide relief for debt evaders.
While emphasising that banks have a fundamental responsibility to recover loans granted to businesses and individuals with depositors’ money, he noted that banks only resort to parate execution when they don’t have any other option to recover loans.
“If banks are unable to recover disbursed loans due to the opposition of a small number of debt evaders, it will be a violation of fundamental rights of depositors as there’s no consent from the depositors to provide such relief to debtors.
It will become a great injustice for companies and individuals who are looking for credit to genuinely expand their businesses, which results in economic growth in the country, because banks become reluctant to lend, he added.
Dr. Weerasinghe also said that depositors must get organised to safeguard their savings in the banking sector, instead of waiting until financial institutions collapse.
“There’s not much noise coming from depositors’ side unlike the debt evaders. Depositors only come to protest after financial institutions such as ETI, Golden key, The Fnance.. etc fail. People should decide whether banks should provide debt relief to debt evaders at the expense of taxpayers and depositors,” he stressed.