18 June 2020 12:56 am
The President, or the government for that matter, wants Rs 150 billion to be lent through the banking sector to spur economy activity in the country
A large number of businessmen, including the likes of hoteliers, have applied for loans at 4% interest rates
The same day, the Central Bank’s Monetary Board decided to introduce new credit schemes under Section 83 of the Monetary Law Act No. 58 of 1949
This means the President’s rebuke has yielded results
“It is not only the Central Banks of the big countries, but also those of the small countries that have evolved strategies to stand up to the present economic challenges. The Federal Reserve Bank of the United States has announced a US$ 600 billion programme. Australia and Japan have also done the same,” he said.The President gave such a strong rebuke to the Central Bank because some of its officials were resistant to the relief package announced by the President to redress economic grievances triggered by the pandemic.The President, or the government for that matter, wants Rs 150 billion to be lent through the banking sector to spur economy activity in the country. A large number of businessmen, including the likes of hoteliers, have applied for loans at 4% interest rates announced by the government as part of its relief measures for struggling businesses. The banks find it difficult to lend so much because of liquidity issues. So, the banks have sought working capital amounting to Rs 150 billion from the Central Bank. The Central Bank was not receptive to this idea. According to the government, the President was displeased not only because of the rejection of the government’s proposals, but also because of the Central Bank’s failure to come up with alternative suggestions if his proposal were unacceptable.The same day, the Central Bank’s Monetary Board decided to introduce new credit schemes under Section 83 of the Monetary Law Act No. 58 of 1949.
“Accordingly, in addition to the already disbursed Rs 27 billion under the refinance scheme introduced on March 27, 2020, the Central Bank will provide funding to Licensed Commercial Banks (LCB) at the concessionaire rate of 1.00% against the pledge of a broad spectrum of collateral, on condition that LCBs, in turn, will on-lend to domestic businesses at 4% while ensuring the greatest possible distribution of this facility. This scheme along with the existing refinance scheme will provide Rs 150 billion in total to the businesses affected by the COVID-19 pandemic,” a statement from the Central Bank said.
This means the President’s rebuke has yielded results. The Central Bank took the decision on Tuesday evening itself after the President came down hard on them. According to informed sources, being reluctant to think outside the box has been a problem inherent to the banking sector for long. On this particular matter, some Central Bank officials have come up with various theoretical reasons against the move to release such a large amount of money to the economy. They have reportedly argued that unwanted people would also apply for loans. However, the relief package was announced on March 27. Afterwards, the banking policy adjustments were done. Then, affected business leaders sent in applications for loans. Resistance to the implementation of the programme came much later. This was baffling for many as a result.