Sri Lanka’s licensed commercial banks have moved to calm rising anxiety among small and medium enterprises (SMEs) over the potential enforcement of parate laws, assuring that widespread asset seizures are not on the horizon. The Sri Lanka Banks’ Association (SLBA) in a statement on Monday urged borrowers not to panic and encouraged troubled businesses to proactively engage with lenders to restructure outstanding loans.
The response comes amid renewed agitation by a small group of borrowers, following the end of an extended moratorium on parate executions—a legal mechanism that allows banks to seize mortgaged assets from loan defaulters without court intervention.
“There is no intention by banks to rush into parate action,” the SLBA emphasized, pointing out that only a tiny fraction of borrowers fall into severe default, and even among them, most are given support to reschedule their loans rather than face asset seizures.
The government earlier this year extended the moratorium on parate execution until the end of 2025 for SMEs with loans up to Rs. 25 million, provided they had contacted their banks before 31 March 2025. Borrowers with loans between Rs. 25 million and Rs. 50 million have a grace period until 30 September 2025, while those with loans above Rs. 50 million had until 30 June 2025 to engage with banks. In addition, several banks voluntarily granted extensions up to December 2025 to assist struggling businesses.
Now that the moratorium has officially ended, SLBA warned that certain groups are trying to spark fear of mass auctions and asset seizures, portraying parate laws as the default response by banks.
“This narrative is not only misleading but harmful,” SLBA stated. “Parate laws are designed to safeguard depositors’ money and are used only as a last resort.” According to data from 2019 to 2023, less than 1% of non-performing loans resulted in parate action—even during some of the most challenging economic years.
The association also cautioned that spreading fear could damage public confidence in the financial system, which plays a vital role in supporting economic recovery and investment.
SLBA urged SMEs in financial distress to engage with their banks early and transparently to explore restructuring options. “The stability of the banking sector and wider economy depends on constructive dialogue, not misplaced fear,” the association stressed.
