By: Staff Writer
December 01, Colombo (LNW): Sri Lanka will extend the suspension of parate right execution by banks until June 2025, according to Economic Development Deputy Minister Prof. Anil Jayantha Fernando. This measure, first implemented to support struggling businesses, comes as the government continues analyzing bank loans.
Fernando revealed that discussions with banks have emphasized rehabilitating debtors’ businesses rather than asset seizures that could lead to closures. Loans are being reviewed based on their value and corresponding securities, with findings showing a mix of inactive businesses and intentional defaulters. The analysis is expected to guide future policy, but until its completion, the suspension will be extended by six months.
The debate over the Parate Law, which allows banks to seize collateral without court intervention, reflects the tension between ensuring banking stability and aiding distressed enterprises. Initially halted in June 2024, the law’s suspension followed appeals from borrowers, especially small and medium enterprises (SMEs), and was set to expire on 15 December 2024.
However, the International Monetary Fund (IMF) has called for its reinstatement, warning that prolonged suspension hinders banks’ ability to manage non-performing loans (NPLs) and price credit risks, potentially destabilizing the financial system.
Central Bank Governor Dr. Nandalal Weerasinghe has echoed these concerns, emphasizing the law’s importance for effective debt recovery, particularly as the nation undergoes broader debt restructuring.
He argues that suspending the law discourages lending and weakens banking resilience, suggesting that borrower relief should come from taxpayer-funded programs rather than jeopardizing depositors’ funds.
Conversely, the SME sector argues that the Parate Law exacerbates their challenges. SMEs, vital to Sri Lanka’s economy, have sought a one-year suspension to stabilize their operations. They propose measures such as restructuring loans based on cash flow, concessionary interest rates, and reforms ensuring accurate property valuations and consumer protection.
Additionally, they urge banks to distinguish between “wilful” and “non-wilful” defaulters, advocating fairer debt recovery processes.SMEs have warned that rigid enforcement could lead to insolvencies, worsening economic instability. They also highlight the need for banks to incur higher costs during property seizures to prevent significant government revenue losses.
The debate underscores competing priorities in Sri Lanka’s recovery efforts. While banks need solvency to sustain credit, SMEs are critical for employment and innovation. A balanced solution, such as targeted reforms to the Parate Law, could protect depositors while offering viable businesses a chance at recovery.
As the extended suspension nears its new deadline, policymakers must craft a long-term strategy that fosters both financial stability and economic inclusivity, addressing the needs of all stakeholders in Sri Lanka’s path to recovery.
