Confusion over interest waiver on pawned jewellery
Although the government has promised to waive interest accumulated due to delays in redeeming gold jewellery pawned in state banks for less than Rs.200,000, these banks continue to levy the interest payment, though less, contrary to the budget proposal.A large number of customers told the Business Times that they have fallen from frying pan to the fire, when the banks told them that they will have to pay current interest rate when redeeming their pawned jewellery.
Confusion becomes the order of the day when banks are issued circulars by either the Central Bank and Budget Department of the Treasury on implementing relief measures given to poor people from the interim budget, as these directives are completely different to the budget proposals made nearly two and half months ago.
Explaining the actual position, a senior official of the Bank of Ceylon told the Business Times that the Treasury has issued a circular with guidelines clarifying the budget proposal recently. According to the circular, the banks have been directed to deduct the difference of the interest rate payable at the time of the gold pawning and the current interest rate, when redeeming gold jewellery pawned at less than Rs.200,000.
Citing an example, she said that if a customer has pawned jewellery when the interest rate was 16.6 per cent sometime back, he or she would have to pay the current interest rate of 12 per cent if the item is to be redeemed.
The bank will deduct 4.6 per cent (difference between then and now rates) from the accumulated interest under the present guidelines, she said adding that customers will still be getting a relief under the interest deduction.
But she pointed out that this would have a considerable financial impact on banks as 30 per cent of gold pawned in banks were less than Rs. 200,000.
The People’s Bank is also levying12 per cent interest in accordance with the Treasury circular on redeeming pawned jewellery by customers, a senior official of the bank said.
Outlining the details in the Treasury circular, she disclosed that the interest reduction is only applicable for customers who pawned their gold jewelry on or before 31-10-2013 and coming under a non performing loan category. These are restrictions that were not contained in the budget proposal which merely said “…The interest payments on pawned jewellery to a value not exceeding Rs. 200,000 held at state banks will be waived as a special relief to the ladies …”
The Treasury will reimburse the loss caused to state banks due to the deduction of interest through its Department of Finance.
Meanwhile, the Finance Ministry is also exploring the possibility of extending this relief scheme to other commercial banks as well.
The Treasury has introduced this relief scheme to prevent the increase in defaults in pawning loans over the next 12 months unless gold prices stabilise, a senior official of the Finance Ministry revealed.