SLBA defends use of parate execution

• Expresses concerns over groups of defaulting borrowers attempting to do away with parate execution
• Asserts parate execution against assets securing bank debt is used as last resort
• Points out overarching objective of banks is to protect depositors’ funds that have been lent to wilful defaulters and borrowers
• Says if parate rights are taken away, banks will be compelled to be extremely selective in lending

Sri Lanka’s banking fraternity yesterday expressed serious concerns on certain segments of the business community advocating for the removal of parate execution, cautioning that any such move would weaken the value of depositors’ funds.
In an effort to set the record straight, where the banks are being blamed for misusing the remedies for recovery, the Sri Lanka Banks Association (SLBA) defended the use of parate execution. It asserted it is used only as the final option.
“Parate execution against assets securing bank debt (depositors’ funds) is the last resort. This is when all efforts at resolution of borrower’s insolvency are met with refusal to review/negotiate, usually by malicious abuse of judicial proceedings, which is a common dilatory tactic,” said the SLBA in a statement to the media.
The association issued its stance in this regard after a group of SME leaders handed over a petition against parate executions to Industries Minister Dr. Ramesh Pathirana and Justice Minister Wijeyadasa Rajapakshe, at a conference on December 21.
Rajapakshe told the audience at the said conference that “major” reforms would be made to the existing parate law and went on to state that the banks are using the law for their benefit.
The SLBA, while not directly referring to the SME leaders, acknowledged that a group of defaulting borrowers is attempting to do away with the parate execution law.
“A group of defaulting borrowers in various sectors has engaged lobbyists of varying degrees of influence to espouse the removal of the protection of depositors’ funds from wilful value destruction by owners of non-viable businesses where repayment delays are deliberate,” it pointed out.
Despite the claims made by the defaulters, the SLBA said the banks are always open to having one-on-one discussions with any borrower, who has faced difficulties in meeting debt obligations, to have alternative options for loan repayments, as it is in the best interest of all stakeholders.
It pointed out that if there is no source of repayment, postponing recovery action would not solve the issue and ultimately the depositors’ funds would not be returned to the banks.
While reiterating that parate execution remedy is aimed at recovering the mortgaged assets from wilful defaulters and businesses that are no longer viable, the overarching objective is to protect the depositors’ funds that have been lent to wilful defaulters and borrowers.
“Depositors’ confidence is of paramount importance for economic growth, which is much needed in the Sri Lankan context.
If parate rights are taken away, the banks will be compelled to be extremely selective in lending and the availability of finance will be to a narrowing segment of entrepreneurs, resulting in credit to the private sector shrinking, contrary to the government and regulatory policies,” the SLBA asserted.