News
Banks take mighty bite at arrears, leaving borrowers beggared
Customers who had taken personal loans from banks and financial institutions found to their horror last month that their entire pay was deducted from their bank accounts, leaving them with a pittance on which to live.
They learned that lending institutions had claimed total arrears for the preceding COVID-19-affected three months from the June salary. Teachers and some public servants who had taken personal loans complained that their pay was drastically slashed from bank accounts.
The government in April announced a moratorium on repayments and directed banks and financial institutions not to claim instalments on personal loans below Rs. 1 million for three months. At the end of this period, however, lenders had deducted the three months’ arrears from the June salary.
Families thus affected said they had no funds to meet everyday expenses and are pawning jewellery and other assets.
Banks and financial institutions have designed their own strategies to recover the loans. For instance, the Bank of Ceylon has adopted an extension strategy to ease the monthly instalments scheme by adding three months at the tail end of the re-repayment period.
The bank’s Deputy General Manager (Retail Banking) E.M. Jayaratne said packages had been arranged with the period of repayment extended and with instalment payments calculated according to the cash flow of customers
Sampath Bank said that since the 7 per cent and 9 per cent moratoriums had lapsed, customers had to return to market interest rates. Assistant General Manager (Recoveries) Shiran Kossinna said that customers have been given space to decide on repayment based on ability.
One major problem is that during the COVID-19 lockdown, several businesses closed and others cut staff salaries while the self-employed were deprived of their livelihood. These include three-wheeler owners: although the government suspended lease instalments for six months on three-wheelers, some owners are in deep trouble, having sold their vehicles to settle loans.
A six-month moratorium on pawned jewellery was also announced. While banks and reputed financial institutions are toeing the line, some mushroom brokers are insisting on customers paying up the quarterly interest.
Some pawn shops said they would review each case and grant time for repayment. With the gold price skyrocketing, extending the period is not a problem, one shop owner said. The moratorium also covers a six-month grace period for three-wheelers. This ends in September – the month in which many concessions lapse.