“Bank deposit and lending rates remain as rigid as they are. This is a matter of some concern for us. In fact, we told the bank CEOs that we think that the bank deposit and lending rates need to come down now. We will monitor that,” he said.
Speaking on the recent government decision to write off the non-consumption loans granted up to Rs. 100,000 to women by microfinance institutions, the Governor said it was a decision based on humanitarian need and its impact at the macroeconomic level was nominal.
“It is less than Rs.900 million altogether. The Government provided relief for women affected by the failure of three successive cultivation seasons due to drought. Part of the problem in the North and the East came about because there was a genuine attempt in the immediate aftermath of the end of the war to drive the rehabilitation and reconstruction programme through two pillars. One was infrastructure development and the other was to provide credit for self employment. Lots of finance institutions set up their branches in the North and the East and lent money to the people.
“However, after 30 years of conflict, people in those areas did not have the wherewithal to make self employment a viable proposition. After 30 years of conflict there was a tremendous backlog of consumption. When the money was given to them a lot of it went straight into consumption. Then the problem has become more compounded by the failure of three successive crop seasons,” he explained.
He said that the Finance Ministry is considering setting up a separate regulatory authority for lending only institutions that do not take deposits.“We only regulate the licensed institutions and the unregulated sector including the lending only microfinance institutions are outside our remits,” he said.
He however said that the Central Bank has launched special programme to raise the awareness of the people in terms of financial literacy.“We have put out a customer charter setting out responsibilities for the financial institutions as well as for the borrowers. We have set up help desks in our regional offices in Killinochchi and Trincomalee. At the same time, we have spoken to the finance companies and the banks to make sure that they do proper evaluation,” he added. Responding to a question by a journalist on the impact of duty waivers given under the Singapore-Sri Lanka Free Trade Agreement, the Governor said necessary safeguards have been taken during the negotiations to avoid local manufacturers from being affected.
“There will be revenue impact from tariff reductions, but during negotiations we have included a big negative list. We contain the imports of items which we have strategic interests in terms of trade. Singapore has liberalised about 97 percent of their tariff lines. We have to consider the overall benefit,” the Cntral Bank Governor noted.He pointed out the biggest advantage of the FTA with Singapore will be from investments and e-commerce.
“As I understand, we will not get a considerable export advantage due to the FTA with Singapore, because those sectors are already opened through various means. The biggest advantage will be from investments and e-commerce. The Singapore investors have been provided greater comfort to come here and invest. Through E-commerce chapter included in the agreement, we can have access to ASEAN market through Singapore,” he commented.