Finance companies asked to join banks to provide relief on passenger vehicle leases

After banks were asked to come on board to provide extended relief on leases on passenger transportation sector, the finance company sector too has been requested to join the bandwagon to provide similar assistance to their borrowers as Central Bank’s talks with the latter on the matter have come to fruition. Fortnight ago the Central Bank said they were holding talks with both Sri Lanka Banks’ Association and the Finance House Association of Sri Lanka, the two apex bodies representing the two sectors, to explore the possibility of extending relief to the worst-affected borrowers in sectors identified as still reeling from the pandemic induced business disruptions. 

As a result the Central Bank in a fresh circular issued to licensed finance companies and specialised leasing companies instructed to provide six-month moratorium on leases on vehicles operating in the passenger transport sector, effective from April 1, 2021, for those who become eligible after making a written request from their respective institution. 

“With a view to meeting the challenges faced by businesses and individuals engaged in passenger transport sector due to ongoing COVID-19 pandemic, the Central Bank of Sri Lanka requests licensed finance companies and specialised leasing companies, to provide concessions for the payment of lease facilities obtained by COVID-19 affected businesses and individuals engaged in passenger transport services for a period of six months commencing from 1 April 2021…”, the circular issued by the Central Bank said. 

Similar to the earlier circular issued to banks, businesses and individuals engaged in public passenger transportation, private passenger transportation such as school transport service, office transport service, taxis, including three wheelers, etc. and those who provide passenger transportation services to the tourism sector could make themselves for the relief.

While the moratorium will be applicable on both the capital and interest components of the instalment, the borrower, in this case the lessee must make a written request from their leasing licensed finance or leasing company, either via snail mail or electronic mail, on or before April 19, 2021. 

A similar structure followed by the banking sector would be followed by the finance companies when structuring deferred payments, as the finance company is required to extend the tenor of the lease by the respective period of deferment. 

Such deferred instalments shall be recoverable from April 2023 along with the existing lease instalment falling due during this period on a monthly basis. But in cases where the remaining tenor of the lease comes to an end before April 2023, the recovery of the deferred instalments may commence at the completion of the remaining tenor of the lease facility. 

“Once the remaining tenor of the existing lease facility is over, borrowers shall commence repayment of the deferred instalments…”, during that extended tenor of the lease, the circular said. 

However, the interest rate applicable on such lease instalments falling due during the deferred period cannot exceed 5.5 percent plus the one year Treasury bill rate at the latest auction available as at April 1, 2021, “and shall not exceed 11.5 percent per annum,” as the Central Bank has capped the maximum rate applicable for instalments falling due during the deferred period.