The Commercial Bank of Ceylon said this week that it is the first bank in Sri Lanka to support national development initiatives with concessionary long term lending from its Investment Fund Account (IFA) set up in accordance with a proposal by President Mahinda Rajapaksa in the 2011 budget.
The bank said it is providing a loan of Rs 1.5 billion to the Road Development Authority (RDA) payable over 14 ½ years, in the first ever disbursement from the IFA scheme proposed in the National Budget of November last year.
The funds are to be used in a two and a half year project to rehabilitate/improve a 21.5 km stretch of the A6 highway between Dambulla and Habarana, under the government’s infrastructure development programme. International Construction Consortium (Pvt) Ltd (ICC), is the designated contractor who is also a key client of the Bank.
An agreement covering this loan was entered into on Tuesday, August 30 by the Commercial Bank and the RDA.
In its 2011 budget the government reduced VAT on financial services from 20 % to 12 % and reduced tax on profits of banking and financial institutions from 35 % to 28 %. With this reduction, the President proposed that all banking and financial institutions be required to formulate separate Investment Fund Accounts to transfer tax & 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 can now 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.