Hundreds of Sri Lanka’s senior citizens are in a quandary after they were encouraged by the Central Bank to place their monies in commercial banks with the promise of a 20 percent bonus on interest.
Six months later, the Central Bank has now told the commercial banks that the bonus scheme is being suspended in view of the large sums of money involved.
Many of the senior citizens had withdrawn their savings from finance companies and deposited them in the state and private banks as interest on deposits had fallen from 14-18% to 8-9% in the past three years.
“This is very, very unfair. We are struggling to survive on these low interest rates and the bonus interest was given following representations to the government. We are now back to square one and again facing desperate times,” an elderly Colombo resident said.
Under this scheme, the government directed that a 20% bonus interest be given from January to citizens over 60 years on rupee deposits in licensed banks. On June 30, a circular was issued to commercial banks by the Central Bank suspending the scheme.
“It was done on the instructions of the Government. We are just a facilitator in this scheme,” one senior Central Bank official said, explaining however that most schemes of this nature are short term, temporary and meant to meet a particular situation.
The bonus interest scheme was initially for three months (to March) and then extended for another three months, the official said. “When interest rates fell, elderly citizens complained to the government after which the bonus interest scheme was devised. However, inflation and the cost of living have come down and we believe such a bonus scheme is not necessary now,” he said.
Commercial bank officials said the scheme was withdrawn because of limited state funds.
Another aggrieved depositor said all their savings have gone into fixed deposits and they were dependant on interest income.
“When it falls we struggle to survive. We have bills to pay and often education expenses of our children,” she said. “The government needs to be a little more considerate.”
The Central Bank official agreed that senior citizens were a vulnerable group and pointed that there were other measures by which they were offered some social protection. “All state banks have been instructed to come up with social security schemes because living on one’s interest rate is simply not sustainable. It’s okay when interest rates are high but what happens when the rates come down which is a natural market phenomenon?” he asked.
A similar suspension was made of another scheme where 20% bonus interest was paid on NRFC accounts. This was introduced in January 2009 to attract more foreign currency into the country, as Sri Lanka was short of foreign exchange. That bonus scheme ended in October 2009 after foreign currency reserves improved.
Economists said the social phenomenon of living on interest rates was not sustainable. “This has been a recent practice in the absence of proper pension and social security schemes but is unsustainable because interest rates fluctuate and what goes up will, eventually, come down,” one economist said.