State mulls takeover of unused funds in commercial banks
The government is mulling the takeover of undisbursed money in dedicated ‘Investment Fund Accounts ( IFAs)’ of state and private commercial banks, official sources said.
These accounts were opened by banks in support of Small and Medium scale Enterprises ( SME) in the island under a 2011 budget proposal. Then the government reduced VAT on financial services to 12 per cent from 20 per cent and reduced tax on profits of banking and financial institutions to 28 per cent from 35 per cent.
With this reduction, the President proposed that all financial institutions be required to formulate separate IFAs to transfer tax and VAT savings arising from these proposals.
The Central Bank and the Department of Inland Revenue thereafter issued specific regulations requiring banks to adopt low interest rates and longer term maturity for lending these funds to designated areas – including infrastructure development, vocational training, agriculture and IT related activities.
Consequent to the ratification of these proposals, state institutions were given an opportunity to borrow direct from local banks instead of being dependent on Treasury borrowings from foreign institutions, leading to benefits such as savings of foreign currency, faster disbursements and the active participation of the lending banks in monitoring progress of projects.
However it has been revealed that some of these banks have not fully disbursed the money collected in IFAs.
A senior government official said the Treasury will take over these accumulated funds of banks which have failed to disburse it among SMEs in accordance with specific prevalent regulations.
However according to Finance Ministry sources, Sri Lankan private commercial banks have given more loan facilities for SMEs surpassing state-owned quantum in 2012.
According to the data compiled by the Department of Development Finance of the Treasury, eight private banks have disbursed a total of Rs. 231.5 billion among SMEs during 2012 while only Rs.34 billion had been provided by four state banks.