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Credit Support to Accelerate Economic Growth

Economy News Update: With a view to accelerating economic growth in the country and based on discussions held with the Hon. Prime Minister and the Minister of Finance, officials of the Office of the President, Office of the Prime Minister and Ministry of Finance, the licensed commercial banks and licensed specialized banks (hereinafter referred to as licensed banks), have agreed to provide a special credit support scheme to eligible Small and Medium Enterprise borrowers of respective licensed banks during 01.01.2020 to 31.12.2020 to complement the fiscal incentives already announced by the Government.

Based on the discussions the Central Bank of Sri Lanka (CBSL) had with the licensed banks, it is observed that the proposed scheme may not cause an undue level of stress or threaten the stability of the banking system. Accordingly, this Circular sets out the guidelines for giving effect to the Scheme in a consistent manner across licensed banks.

General Terms and Conditions

The Scheme is in operation from 01.01.2020 to 31.12.2020.
Eligible Borrowers
Small and Medium Enterprises (SMEs) with an annual turnover between Rs. 16 mn to Rs. 750 mn for the year ended 31.12.2019 that have obtained credit facilities from licensed banks are eligible to participate in this Scheme. In the case of SMEs, which are in the Non-performing Loans (NPLs) category as at 31.12.2019, the lower limit of annual turnover, i.e., Rs. 16 mn, will not apply.
SMEs operating in manufacturing, services, agriculture (including processing) and construction sectors and have obtained business related term loans, leasing facilities, overdrafts and trade finance facilities denominated in Rupees are eligible under this Scheme, subject to certain requirements. In the case of SMEs which are in the NPL category as at 31.12.2019, the business sectors supported under this scheme shall also include value addition businesses and trading.

Eligible borrowers are required to make a written request to respective licensed banks to avail of this Scheme on or before 10.02.2020.
Participants of this Scheme shall continue to service the interest due on credit facilities considered under this Scheme in a timely manner. Those who fail to service interest will not be entitled to enjoy the benefits of this Scheme.

Performing Loans

Eligible borrowers with aggregate outstanding exposure up to Rs. 300 mn as at 31.12.2019 with a licensed bank shall avail of a capital moratorium during 01.01.2020 to 31.12.2020, from such licensed bank.
Permanent overdraft facilities falling due or maturing or under review during the period up to 31.03.2020 will be extended up to 30.06.2020, by the licensed bank. In the case of Temporary Overdraft facilities as at 31.12.2019, the expiry of Temporary Overdraft limits will be extended by two months.
Eligible trade finance facilities falling due or maturing or under review during the period up to 31.03.2020, shall be extended by 30 days.
An additional loan or a new loan facility not exceeding Rs. 300 mn may be provided by a licensed bank, for investment or working capital purposes, with a maximum grace period of one year, subject to certain conditions. However, the borrower needs to submit a credible business plan.
The investment purpose loan facility should be repaid over five years at an interest rate equal to maximum of Average Weighted Prime Lending Rate (AWPR) plus 1.5% to expand business activities. The working capital purpose loan facility should be repaid over two years at an interest rate equal to AWPR.
Concessions already granted under different relief schemes and which are due to expire before 31.12.2020, will be extended up to 31.12.2020. However, such borrowers shall be required to comply with the requirements of this Scheme.
Licensed banks may consider granting concessions to borrowers whose total borrowings exceed Rs. 300 mn, on a case-by-case basis.

Non-Performing Loans (NPLs)

Eligible SMEs which were in the NPL category as at 31.12.2019, will be eligible to avail of the concessions set out below.
The total penal interest accrued and unpaid on NPL loans and advances will be waived by licensed banks.
Rescheduling of loans and advances will be as follows:
Where the borrower has repaid 50% or more of the initial capital, 50% of the accumulated and unpaid interest of the defaulted instalments up to the date of consideration by the licensed bank will be deferred and the balance capital and interest will be rescheduled. The balance capital outstanding, balance portion of interest of the defaulted instalments and the future interest will be rescheduled.

Where the borrower has repaid less than 50% of the initial capital, 25% of the accumulated and unpaid interest of the defaulted instalments up to the date of consideration by the licensed bank will be deferred. The balance capital outstanding, balance portion of interest of the defaulted instalments and the future interest will be rescheduled.

The rescheduled balances of the capital and interest need to be repaid over a period not exceeding twice the remaining number of instalments of the original loan.

A one-year grace period will be granted. However, borrowers will be required to service the interest in a timely manner.

New working capital loan: Licensed banks may grant maximum of three months working capital requirement as a loan with a maximum tenure of six months to SMEs which are in NPL category to revive businesses, at an interest rate of not more than 2% plus the prevailing Standing Lending Facility Rate, subject to conditions.
Licensed banks will defer auctioning of assets until 31.12.2020 and suspend legal action against non-performing borrowers who are participants of this Scheme.
Licensed banks are expected to have a mechanism not to decline loan applications solely based on an adverse record at the Credit Information Bureau of Sri Lanka (CRIB).
Credit Guarantee Scheme: GoSL and CBSL will formulate a Credit Guarantee Scheme to mitigate the credit risk arising from any additional loans and advances for up to 75% of the capital sum granted by licensed banks.