FinMin says will soon come up with solution to settle senior citizen interest arrears to banks

• Arrears amount at Rs.38bn, says Finance Ministry Secretary 
• Memo to be presented to Cabinet for “permanent and acceptable” solution 

The Finance Ministry plans to come up with a “permanent and acceptable” solution to settle the interest subsidy arrears to banks with regards to senior citizen savings, within two weeks, a top official said.

Finance Ministry Secretary Dr. R.H.S. Samaratunga said the ministry is planning to present a Cabinet memorandum to offer a permanent and acceptable settlement to the banking sector to settle the arrears.

Dr. Samaratunga estimated that the arrears as of now stand at Rs.38 billion. 

Central Bank Governor Dr. Indrajit Coomaraswamy in an earlier occasion noted that the government is considering two ways to settle the arrears. 

“The government is planning to give a five-year loan and to repay it in monthly instalments to the banks or to issue a bond,” he said. 

The Central Bank expects the settlement of arrears would support the banking sector to broaden its lending portfolios as the banking sector is currently focusing on improving its asset quality amid a build up in non-performing loans.

The banking sector sources said the non-payment of dues by the government on the senior citizen interest subsidy scheme for over 10 quarters has been a major reason for the banks to maintain higher lending interest rates.

In 2015, the government introduced a 15 percent subsidised interest scheme for fixed deposits up to Rs.1 million maintained by citizens over the age of 60.
The government is expected to pay the difference between the 15 percent and market standard interest rate offered by commercial banks. The Rs.1 million threshold was increased to Rs.1.5 million in 2017.

The Central Bank has requested to bring down the deposit rates and cut the lending rates to increase credit flows into the real economy to spur growth.
Sri Lanka’s growth slowed to 3.2 percent in 2018, from 3.4 percent in 2017.