Central Bank extends debt moratorium till 31 Dec.

• Relief to COVID-19-affected biz and individuals was to expire on 31 Aug.
• Banks are required to ensure deferment or restructuring of existing credit facilities in performing category as of 1 Sept.
• For facilities in non-performing category, banks may reschedule on case-by-case basis, over a longer period, considering repayment capacity of borrower and acceptable revival plan
• Eligible borrowers must request for latest concessions on or before 21 Sept. 
• Banks cannot allow penal interest to be accrued or charged during concessionary period 1 Sept. to 31 Dec. for amounts falling due
• Banks told to suspend all types of recovery actions until 31 Dec. against credit facilities that have been classified as non-performing on or after 1 April 2020 
• Banks also requested to extend validity period of cheques valued less than Rs. 500,000 until 31 Oct., discontinue charging for cheque returns and stop payments in relation to all cheque payments until 30 Sept.
• Banks requested to discontinue late payment fee on all credit cards and other credit facilities during period up to 31 Oct. for those who are demonstrably affected

Central Bank Governor Prof. W. D. Lakshman

The Central Bank (CB) has extended the debt moratorium for COVID-19-affected businesses and individuals by another three months till 31 December. 

It said the extension was after considering the new surge in COVID-19 outbreak and requests from many concerned parties. The moratorium was to expire on 31 August.  With a view to facilitate the challenges faced by businesses and individuals due to the ongoing COVID-19 pandemic, the CB on Wednesday, via a new circular, requested licensed commercial banks and licensed specialised banks to extend the debt moratorium. 

Such relief in effect means extension of the concessions granted under Circular No. 05 of 2021 dated 25 May.

Further, licensed banks may offer additional concessions to businesses and individuals affected due to the COVID-19 pandemic, on their request, in a way that the overall benefits to the borrower/customer are not less than the benefits offered under the latest circular.

The new circular was issued to give effect to the scheme in a consistent manner across all licensed banks, with a view to easing the burden on the borrowers that are affected by the current disruption in business/income generating activities to duly repay their loans. 

The latest extension is not applicable for borrowers in the tourism sector, who are eligible to obtain concessions granted for the tourism sector separately. Tourism sector debt moratorium expires on 30 September.

Banks are required to ensure deferment or restructuring of existing credit facilities in the performing category as of 1 September.

They can defer recovery of capital, interest or both of the existing performing credit facilities of borrowers who are affected by COVID-19, on case-by case basis, during the period up to 31 December, considering the financial difficulties faced by such borrowers, including loss of job, loss or reduction of income/salaries or sales, reduction or impairment business operations or the closure of business, etc.

Banks have been requested to prioritise accommodating the requests for concessions made by borrowers in the Micro, Small and Medium Enterprises (MSME) sector.

The deferment of capital, interest or both should be granted for one or more of the existing credit facilities granted in rupees and/or in foreign currencies, considering the financial difficulties and repayment capacity of the eligible borrowers.

They can amalgamate the amounts fallen due during the previous moratorium/deferment schemes (i.e., capital, interest and applicable interest for the respective moratorium/deferment period on the respective moratorium/deferred amount) and the amounts falling due during the current scheme (i.e., capital and interest) in to one new loan. 

Banks may charge an interest rate commencing from 1 September, on the new loan referred above and for the agreed period of repayment based on a separate loan amortisation schedule for this period.

In the case of rupee facilities considered for the deferment, banks may charge an interest rate not exceeding the latest available 364-days Treasury Bills auction rate as of 31 August plus 1% per annum (i.e., 5.93% + 1% = 6.93%). 

In the case of foreign currency loans, licensed banks may charge a concessionary rate of interest. Further, interest for the remaining capital outstanding balance, excluding the deferred capital amount of the existing facility will continue to accrue at the contracted interest rate after the end of the deferment period.

In the case of instalment loans, including lease facilities, a licensed bank and the respective borrower need to agree on a repayment period commencing from 1 July 2022, up to six months, to settle the new loan referred to above, considering the financial difficulties faced by such borrowers. The borrower may commence the repayment of the new loan at an earlier date, if the borrower wishes to do so. However, the borrower shall commence repayment of existing facilities from 1 January 2022.

In the case where a borrower requests for a period beyond six months to settle the new loan, the borrower and the bank need to agree on a concessionary interest rate beyond the six-month period.

Banks should explain the benefits of commencing early repayment and the implications of extending the repayment period to the borrower, in order to encourage the borrower to commence early repayment of the deferred amount.

Alternatively, banks may restructure the existing credit facilities, on a case-by-case basis, over a longer period, considering the repayment capacity of the borrower and an acceptable revival plan. In this case, the licensed bank and the borrower shall agree on an interest rate, considering the prevailing low interest rates.

Licensed banks should extend the due dates of revolving credit facilities, including but not limited to facilities such as working capital, pawning, temporary overdrafts, short-term trade finance facilities, etc., on case-by-case basis, during the period up to 31 December, provided such due dates fall during 1 September to 31 December. Licensed banks may charge interest for the deferred period and only on the deferred amount.

Banks should not allow penal interest to be accrued or charged during the concessionary period, i.e., 1 September to 31 December, for the amounts falling due during this period.

They can accommodate any request from affected borrowers to delay the due dates of loan repayments by few days (maximum 15 working days) due to the ongoing quarantine lockdown, without deferring or re-structuring such facilities.

Banks have been told not to charge any additional interest or other charges for such delay. 

Concessions for credit facilities in the non-performing category as at 1 Sept.

Banks may reschedule the existing non-performing credit facilities as of 1 September, on a case-by-case basis, over a longer period, considering the repayment capacity of the borrower and an acceptable revival plan. In this case, the banks and the borrower shall agree on the terms and conditions including the interest rate, considering the prevailing low interest rates.

Banks shall waive off penal interest accrued or charged during the period 1 April 2020 to 1 September 2021, provided such facilities are considered for restructuring under this scheme.

They are also required to suspend all types of recovery actions until 31 December against credit facilities that have been classified as non-performing on or after 1 April 2020. 

Further, they should take all the precautions not to excessively contact/force the borrower or visit the borrower as part of the routine collection procedure with regard to the above borrowers. In instances where there are ongoing litigations in courts relating to recovery, borrowers shall enter into an agreement in the courts to obtain this concession.

Banks have been told not to levy excessive fees or charges in relation to granting of concessions and must inform such fees or charges in writing to the borrower.

Banks also have been requested to extend the validity period of cheques valued less than Rs. 500,000 until 31 October. Licensed banks shall discontinue charging for cheque returns and stop payments in relation to all cheque payments until 30 September.

Licensed banks shall discontinue late payment fee on all credit cards and other credit facilities during the period up to 31 October for those who are demonstrably affected.

In the case where a borrower who is eligible for concessions under this scheme, has expressed his/her willingness to settle his/her existing credit facilities or amounts fallen due during the moratorium period, instead of opting for concessions under this scheme, licensed banks are encouraged to provide interest rebates. Further, licensed banks shall waive-off early settlement fees and other fees and charges including recovery of future interest of lease facilities, if any, to such borrowers.

Banks should not decline loan applications from eligible borrowers under this scheme solely based on an adverse CRIB record.

They in consultation with CRIB, shall develop a reporting modality to report deferment restructuring granted under this scheme, so that participation in the scheme will not have an impact on the credit score of borrowers in the future, or be negatively reflected in future CRIB reports.

Concessions for credit facilities granted under refinance/interest subsidy schemes; licensed banks are required to seek necessary guidelines from the relevant agencies with regard to providing concessions for credit facilities granted under various refinance or interest subsidy schemes.

Eligible borrowers may request for the latest concessions on or before 21 September in writing or through electronic means. Banks should expeditiously communicate the concession, deadline and application format for submission to all eligible borrowers via printed and/or electronic means including email and SMS.

They should accept any request submitted after 21 September, if the reasons for delay in making such request is acceptable.

Any eligible borrower who has the capacity to service the loan repayment is expected to service such loan repayments instead of requesting for deferment or restructuring of credit facilities.

Banks are to ensure that the borrowers are made aware of the structure of the deferment or restructuring of credit facilities prior to approval and the consent of the borrower shall be obtained in writing or through electronic means.

In the case of a rejection of the application, licensed banks shall inform the applicant, preferably within 14 days, in writing/ through electronic medium, the reasons for such rejection, and that there is an opportunity for the borrower to appeal against such rejection to the Director, Financial Consumer Relations Department (FCRD) – Central Bank of Sri Lanka requesting for a review. 

Banks should advise the applicant by and through the same letter of rejection that the applicant is entitled to duly avail himself of the review facility, if the borrower so wishes.

In the case of risk elevated borrowers or sectors, licensed banks are required to make adequate impairment charges. Licensed banks may seek advice from the Institute of Chartered Accountants of Sri Lanka (CASL) and auditors for additional guidance/clarification in this regard.