The Government decision to suspend recovery of loans obtained by the SME sector, not exceeding Rs 300 million for each entity through a directive to revive SMEs in the country, would not have a negative impact for the banking sector, Senior Advisor on Economic Affairs to the Prime Minister, Ajith Nivard Cabraal said.
He said that Banks will freeze the capital for one year while the interest component would still be paid. “Hence there would not be any negative impact or additional financial pressure for the banks who were lenders.”
The Government has also directed the Banks to resort to this plan as they will benefit with the exemption of a whole package of tax exemptions which the Banks are now not required to pay to the Government as well. This in turn, should be a huge saving for the banks too.
On December 20, the Government suspended recovery of loans obtained by the SME sector, not exceeding Rs 300 million for each entity through a directive to revive SMEs in the country. “The recently announced tax reform initiatives provide substantial savings to all banks including the Central Bank of Sri Lanka. The Government expects the banks to use part of such savings to revive the SME sector on a priority basis. This concessionary action will be followed by a comprehensive package coupled with already announced tax concessions designed by the Ministry of Finance, economy and Policy development and the Central Bank of Sri Lanka which will support both the lender and the borrowers especially the SME sector” the Treasury said.
The exemption of the capital repayment plans SME defaulters will also enable them to maintain their capital bases for expansion and recovery plans as well, they said.
Now with the announcement of this new package, the SME entrepreneurs will not have to divest their mortgage assets to the banks as would have otherwise happened.
This proposal comes in the wake of the Government making a valiant effort of its desire to revamp the SME sector which constitutes the backbone of the economy.
Particular focus has been laid on the rice millers as well as they are running into operational hazards during the 2019/2020 Maha season as well.
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