Over a million Sri Lankan senior citizens, hurt by the recent interest rates cut by the government, will benefit from a 20 % bonus interest payment on their bank accounts for which a state subsidy of Rs 1.2 billion per annum has been allocated by the Treasury. The scheme will be strictly supervised to prevent malpractices by the beneficiaries or banks.
A senior Central Bank (CB) official told the Business Times that the bonus interest earned by senior citizens under this scheme will be calculated by the Bank’s Supervision Department on the basis of information submitted by licensed banks and will be directly paid to their accounts. Asked whether this scheme would be limited to a few years or be endless, the official said, “This will be ongoing and not limited to a specific period.” Earlier in June 2009, the CB offered a similar 20% bonus interest scheme for NRFC (local foreign currency account holders) to boost remittances during a foreign currency crisis but withdrew it later in October after foreign reserves improved.
Interest rates were slashed by almost half in October 2009 on a directive by the President to encourage sagging private sector investment in the economy but on the negative side, most people – particularly elderly persons - dependant on interest income saw their earnings crash by half. Lending rates were reduced to 8-12 % from a high of around 18-22%. Bank of Ceylon (BOC) was among the first off the blocks to reduce rates across the board, a decision which saw it lose over Rs 500 million a month on interest income on earlier loans. “However this loss has been factored in the interests of the econony and development,” BOC Chairman Gamini Wickramasinghe told the Business Times on Thursday.
The Central Bank official said the processing of data submitted by public and private banks is now underway. Details of savings accounts of senior citizens have already been received. The payments would be limited to Rs 120,000 per person per year.
Elaborating on the scheme, he said that a senior citizen will get additional 20% from their present interest rate as a bonus from the government. Citing an example he noted that if a senior citizen is getting an interest of Rs.10,000, another Rs. 2,000 will be added to his interest as a bonus.
The CB has started paying the bonus interest (amounting to one fifth above prevailing interest rates) to senior citizens on rupee deposits maintained in 18 banks for the month of January with effect from Thursday March 18.
Instructions have been issued to these banks to credit the interest to the accounts of senior citizens, he added. Data of 18 more banks are to be processed and necessary instructions will be issued after completing the processing. The payment of bonus interest to depositors at other banks for January and February will be given together in one lump-sum at a latter date upon the submission of necessary information by these banks, he said. Banks have been instructed to submit details of interests accrued on senior citizens accounts to the Director of Bank Supervision within five days from the end of the preceding month.
In the case of abuse of this scheme, the CB, at its discretion would declare ‘guilty’ depositors as unqualified to receive bonus interest under the scheme and require such depositors to repay bonus interest they have received under this scheme up to that date. Some of the misuse could relate to beneficiaries submitting false dates of birth or trying to collect this facility for many accounts instead of one.
He said banks should maintain records on the payment of bonus interest for Examiners of Bank Supervision Department to peruse at any time. Central Bank Examiners will be visiting these banks from time to time to check these details to prevent any malpractices, he said. |
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