Having been criticised for weeks over flawed handling of the 15 per cent interest for deposits of elders, the authorities now deserve to be praised for finally implementing the proposal as promised in the budget. Apart from this much-looked-forward to concession, senior citizens received another bonanza this month when a proposal in the Mahinda Rajapaksa-2015 [...]

The Sunday Times Sri Lanka

Sunset to sunrise for Sri Lanka’s senior citizens

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Having been criticised for weeks over flawed handling of the 15 per cent interest for deposits of elders, the authorities now deserve to be praised for finally implementing the proposal as promised in the budget.

Apart from this much-looked-forward to concession, senior citizens received another bonanza this month when a proposal in the Mahinda Rajapaksa-2015 budget exempting senior citizens from interest income was also implemented.

On both developments this week, the Government must be commended for easing the plight of senior citizens, even more so for going ahead with a proposal by former President Mahinda Rajapaksa.

In the 2015 budget presented by Rajapaksa on October 24, this is what the former president said on this proposal: “I propose to exempt interest income of deposits held by elders and reduce the withholding tax on interest to 2.5 per cent from next year”.

The Business Times ran a widely-read (and much appreciated) campaign over the past several weeks through news stories, editorials and a flood of letters on the flawed handling of the 15 per cent interest rate proposal.

Initially there was confusion (absolute confusion) since in the Rajapaksa budget it was announced that pensioners and elders would be eligible to 12 per cent interest (compared to current rates of 7-8 per cent) on their deposits in state banks.

The rationale for a special rate for elders (over 60 years) was due to rising costs coupled with falling interest rates which made it difficult for pensioners to survive from the meagre income they received from bank or finance company deposits.

Though there was no limit prescribed in the budget on the quantum of funds that this special rate applies to, the circular that went to banks said this is restricted to a deposit of Rs. 2.5 million. Then again it was extended to cover all commercial banks. That was subsequently altered, also by the former regime, to a maximum of Rs.1million at 12 per cent.

When Finance Minister Ravi Karunanayake presented the new government’s interim budget in January, the same proposal was altered to a higher interest rate of 15 per cent on a maximum of Rs.1 million.

In the meantime, since the Central Bank circular to banks providing guidelines for the minister’s proposal was taking time, some banks began implementing the earlier proposals (12 per cent for Rs. 1 million or Rs.2.5 million).

In the absence of a proper communication process between banks and their customers, a few customers – who almost daily trudged to bank branches to find out whether the facility was available – were lucky enough to avail themselves of the new interest rate when told over the counter that the scheme was in force.

Others were unaware that the special rate scheme was in force, until the new 15 per cent interest rate came into operation but that again with a lot of ambiguity.

At least three circulars by the Central Bank and two newspaper notices by the Sri Lanka Banks Association were issued after this newspaper took the authorities to task for the confusion that prevailed.

The paper received dozens of calls from elderly citizens pleading for justice and fair play in the enforcement of this special interest rate. Their main grouse was that while the budget clearly stated that this interest rate would be provided to one, single deposit of Rs.1 million irrespective of the quantum of funds a customer had (whether Rs.1 million or Rs.10 million), it was being implemented with several restrictions. Senior citizens felt cheated.

Week after week, the proposal kept getting amended until a March 13 circular gave instructions to banks to allow all senior citizens to make use of this facility irrespective of the amount that they had in bank deposits. There were no restrictions and in fact provided even newer concessions.

Earlier eligible customers were not allowed to put together Rs. 1 million from savings and current accounts to apply under this scheme; it was strictly confined to what an individual already had in a fixed deposit. However under the new guidelines to banks last month, this restriction was also removed much to the delight of hundreds of customers.

Thus while a Business Times campaign to ensure justice and fair play worked, part of the success is also due to the Government listening to the people, something that has rarely happened in the past.

The authorities also deserve applause for doing the unthinkable -accommodating the Rajapaksa proposal of interest-free deposits for senior citizens.

There was no malice, no politics or one-upmanship: it was simply endorsing a proposal that the new regime felt was a good one.

A major weakness in the banking sector exposed in the sequence of events on the 15 per cent interest rate issue, is the lack of a proper communication mechanism. Senior citizens had to physically visit banks to find out details while calling a bank was not helpful either with service agents either too busy or giving confusing responses. Apart from two advertisements, customers were not informed that the special interest rate was being implemented.

Banks, possessing the latest technology, need to devise a more effective communication system with the help of the Central Bank to inform their clients of various incentives and new schemes, either through email, letter or even SMS. Such information could even be through ATMs.
This scheme, in the meantime, will benefit a sizable number of senior citizens in Sri Lanka. According to official data, some 750,000 senior citizens hold accounts in 33 banks to the total value of Rs. 750 billion.

Assuming 750,000 customers are entitled to 15 per cent interest and get an extra Rs. 70,000 per annum (earlier 8 per cent and now 15 per cent), this could result in an exposure of at least Rs. 50 billion to the Treasury this year which is subsidising this scheme.

This is a huge price to pay for a Government that is struggling with a shortage of funds and huge bills, left behind by the previous regime.

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